<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
Commission File Number 0-21536
Brauvin Corporate Lease Program IV L.P.
(Exact name of registrant as specified in its charter)
Delaware 36-3800611
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
30 North LaSalle Street, Chicago, Illinois 60602
(Address of principal executive offices) (Zip Code)
(312) 759-7660
(Registrant's telephone number,including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Interests
(Title of class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and(2) has been subject to such filing requirements
for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K (Section 229.405 of this chapter) is
not contained herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or
any amendment to this Form 10-K. [ X ]
The aggregate sales price of the limited partnership interests of
the registrant (the "Units") to unaffiliated investors of the
registrant during the initial offering period was $16,008,310.
This does not reflect market value. This is the price at which
the Units were sold to the public during the initial offering
period. There is no current market for the Units nor have any
Units been sold within the last 60 days prior to this filing
except for Units sold to or by the registrant pursuant to the
registrant's distribution reinvestment plan, as described in
the prospectus of the registrant dated December 12, 1991 (the
"Prospectus") as supplemented March 25, 1992 and June 17, 1993
and filed pursuant to Rule 424(b) and Rule 424(c) under the
Securities Act of 1933, as amended.
Portions of the Prospectus are incorporated by reference into
Parts II, III and IV of this Annual Report on Form 10-K.
<PAGE>
BRAUVIN CORPORATE LEASE PROGRAM IV L.P.
1997 FORM 10-K ANNUAL REPORT
INDEX
PART I
Page
Item 1. Business . . . . . . . . . . . . . . . . . . . . . .3
Item 2. Properties . . . . . . . . . . . . . . . . . . . . .6
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . .14
Item 4. Submission of Matters to a Vote of Security
Holders. . . . . . . . . . . . . . . . . . . . . . .19
PART II
Item 5. Market for the Registrant's Units and Related
Security Holder Matters. . . . . . . . . . . . . . .20
Item 6. Selected Financial Data. . . . . . . . . . . . . . .22
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . .24
Item 7A.Quantitative and Qualitative Disclosures About
Market Risk. . . . . . . . . . . . . . . . . . . . .32
Item 8. Consolidated Financial Statements and
Supplementary Data . . . . . . . . . . . . . . . . .32
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . 32
PART III
Item 10. Directors and Executive Officers of the
Partnership. . . . . . . . . . . . . . . . . . . . .33
Item 11. Executive Compensation. . . . . . . . . . . . . . .35
Item 12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . .37
Item 13. Certain Relationships and Related Transactions. . .38
PART IV
Item 14. Exhibits, Consolidated Financial Statement
Schedules, and Reports on Form 8-K . . . . . . . . .39
Signatures . . . . . . . . . . . . . . . . . . . . . . . . .41
<PAGE>
PART I
Item 1. Business.
Brauvin Corporate Lease Program IV L.P. (the "Partnership") is a
Delaware limited partnership formed in August 1991 for the purpose
of acquiring debt-free ownership of existing, income-producing
retail and other commercial properties predominantly all of which
will be subject to "triple-net" leases. It was anticipated at the
time that the Partnership first offered its Units (as defined
below) that the properties would be leased primarily to corporate
lessees of national and regional retail businesses, service
providers and other users consistent with "triple net" lease
properties. The leases would provide for a base minimum annual
rent with periodic increases in rent as a result of: (i) fixed
increases on specific dates; (ii) upward adjustments to indices,
such as the Consumer Price Index, to which base rents are indexed;
or (iii) participation in lessees' gross sales above a stated
level. The Partnership had not sold any of its limited partnership
interests (the "Units") as of December 31, 1991, pursuant to a
Registration Statement on Form S-11 under the Securities Act of
1933, as amended, dated December 12, 1991 (the "Offering"). The
Offering was conditioned upon the sale of $1,200,000 of Units,
which was achieved on April 27, 1992. The Offering was anticipated
to close on December 11, 1992 but the Partnership obtained an
extension until December 11, 1993, with the appropriate
governmental approval. A total of 1,600,831 Units were sold to the
public at $10 per Unit ($16,008,310) through December 11, 1993.
The investors in the Partnership (the "Limited Partners") share in
the benefits of ownership of the Partnership's real property
investments based on the number of Units owned by each Limited
Partner compared to the total number of Units sold. An additional
$435,100 of Units was sold through the Partnership's distribution
reinvestment plan (the "Plan") as of December 31, 1997. As of
December 31, 1997, $118,706 of Units sold through the Offering have
been repurchased by the Partnership from investors liquidating
their investment and retired.
The principal investment objectives of the Partnership are: (i)
preservation and protection of capital; (ii) distribution of the
Partnership's current cash flow attributable to rental income;
(iii) capital appreciation; (iv) the potential for increased income
through escalations in the base rent or participation in the growth
of the sales of the tenants of the Partnership's properties; (v)
the deferral of the taxation of cash distributions for investors
who are not exempt from federal taxation; and (vi) the production
of "passive" income to offset "passive" losses from other
investments.
Some tax shelter of cash distributions by the Partnership will be
available to Class A Investors through depreciation of the
underlying properties. Class A Investors benefit from the special
allocation of all depreciation to the Units which they acquired
from the Partnership because their reduced taxable income each year
will result in a reduction in taxes due, although no "spill-over"
losses are expected. Taxable income generated by property
operations will likely be considered passive income for federal
income tax purposes because Section 469(c)(2) of the Internal
Revenue Code states that a passive activity includes "any rental
activity" and, therefore, is available to offset losses Class A
Investors may have realized in other passive investments.
During the early years of the Partnership, the Limited Partners
received cash distributions in excess of their allocable share of
the Partnership's income, and substantially in excess of their tax
liability thereon, particularly the Class A Investors, due to the
special allocation of depreciation deductions, although the Class
A Investors will recognize more income from the ultimate sale of
Partnership properties.
Taxable income generated by property operations will likely be
considered passive income for federal income tax purposes and,
therefore, such income can be used to offset losses Limited
Partners will receive from other passive investments, subject to
certain limitations.
It was originally contemplated that the Partnership would dispose
of its properties approximately seven to nine years after their
acquisition with a view towards liquidation of the Partnership
within that period.
In accordance therewith, the Partnership entered into an
Agreement for Purchase and Sale of Assets dated as of June 14,
1996, as amended March 24, 1997, June 30, 1997, September 30, 1997
and December 31, 1997 (the "Sale Agreement") with Brauvin Real
Estate Funds L.L.C., a Delaware limited liability company
affiliated with the General Partners (as defined below) of the
Partnership (the "Purchaser"). Pursuant to the terms of the Sale
Agreement, the Partnership proposes to sell substantially all of
the Partnership's properties (the "Assets") for a purchase price of
$12,489,100 in cash, which is $7.65 per Unit. If certain conditions
of the Transaction (as defined below) are met, the Partnership will
be liquidated and dissolved (the "Liquidation") and those investors
who entered into the Partnership as Class A Investors (those not in
need of passive income) (the "Class A Limited Partners") will
receive a liquidating distribution of approximately $6.95 to $7.50
per Unit in cash based upon the time such Class A Limited Partners
invested in the Partnership and Class B Investors (those who are
tax-exempt or seeking passive income to offset passive losses) (the
"Class B Limited Partners") will receive a liquidating distribution
of approximately $8.44 to $8.73 per Unit. Of the total liquidating
distributions for both Class A Limited Partners and Class B Limited
Partners approximately $0.38 has already been distributed in the
December 31, 1997 distribution.
The General Partners anticipate that the Sale Agreement will be
extended past March 31, 1998 in the hope that the pending
litigation (see Item 3) will be resolved.
A special meeting of Limited Partners of the Partnership (the
"Special Meeting") was held on Friday, November 8, 1996 at 10:30
a.m. At this Special Meeting, the Limited Partners holding a
majority of the Units approved the Sale to the Purchaser and the
Liquidation per the terms of the Partnership's proxy materials
dated August 23, 1996, as amended (the "Proxy"). At the Special
Meeting, Limited Partners also approved the adoption of an
amendment to the Partnership's Restated Limited Partnership
Agreement, as amended (the "Agreement"), to allow the Partnership
to sell or lease property to affiliates (this amendment, together
with the Sale shall be referred to as the "Transaction"). Further
information regarding the Sale, as supplemented is located in Items
3 and 7 below.
The terms of the transactions between the Partnership and
affiliates of the General Partners are set forth in Item 13 below.
The Agreement provides that the Partnership shall terminate
December 31, 2011, unless sooner terminated.
The Partnership has no employees.
Market Conditions/Competition
The Partnership has utilized its proceeds available for
investment to acquire properties. Since the leases of certain of
the Partnership's properties entitle the Partnership to participate
in gross receipts of lessees above fixed minimum amounts, the
success of the Partnership will depend in part on the ability of
those lessees to compete with similar businesses in their
respective vicinities.
Although management of the Partnership anticipates that the Sale
will be consummated it is unable to predict the timing of the
closing of the Transaction as the Partnership has been unable to
meet the "no material litigation" condition of the Sale. Should
the Sale not be completed, the General Partners will have to
determine whether to continue its operations or attempt to sell
some or all of the properties. The Partnership has and continues
to compete with many other entities engaged in real estate
investment activities. It is not possible for the General Partners
to determine at this time what actions they will take in connection
with the continuation of the Partnership should the Sale not be
completed. The General Partners will evaluate factors such as the
economy, the lease terms, the financial strength of the existing
tenants and the ability to locate potential purchasers.
Item 2. Properties.
The Partnership is a landlord only and does not participate in
the operations of any of the properties discussed herein. All
lease payments due to the Partnership are current. At December 31,
1997, all properties, except the House of Fabrics located in
Joliet, Illinois, were 100% occupied. All properties were paid for
in cash, without any financing. The General Partners believe that
all properties are adequately insured.
On October 31, 1996, the Partnership and three other affiliated
public real estate limited partnerships formed a joint venture,
Brauvin Bay County Venture, to purchase the land and building
underlying a newly constructed Blockbuster Video store. The
Partnership has a 24% equity interest in the Brauvin Bay County
Venture.
The following information is presented for the properties
acquired by the Partnership whose cost basis exceeds 10% of the
gross proceeds of the Offering.
On January 18, 1994, the Partnership purchased the land and the
6,240 square foot building (the "East Side Mario's Property")
underlying an East Side Mario's restaurant, located in Copley,
Ohio, from Morgan's Foods, Inc. for $1,435,000 plus closing costs.
Morgan's Food is the East Side Mario's franchisee for the State of
Ohio. During 1994, the franchisor, Prime Group of Canada, Inc.,
sold the East Side Mario's concept to Pizza Hut, Inc., a division
of Pepsico, Inc. This sale has no effect on the existing lease.
The store is leased to Morgan's Creative Concepts, Inc. and the
lease is guaranteed by the parent company, Morgan's Food, Inc. for
20 years expiring on January 31, 2014, plus two ten year options.
The tenant is obligated to pay base minimum rent each month in the
amount of $13,453 plus minimum rent escalations of 15% of the then
minimum base rent every five years beginning in the sixth year of
the lease. The tenant is also obligated to pay percentage rent of
5% of total annual sales which exceed a pre-established amount.
The tenant leased the East Side Mario's Property under a triple-net
lease whereby the tenant pays for all expenses related to the East
Side Mario's Property including real estate taxes, insurance, and
maintenance and repair costs.
On February 23, 1994, the Partnership purchased the land and the
7,028 square foot building (the "Blockbuster Property") underlying
a Blockbuster Video store located in Eagan, Minnesota, from an
unaffiliated seller, for a purchase price of $905,000 plus closing
costs. The Blockbuster Property is leased to Mid-America
Entertainment Company (the "Blockbuster Tenant"), a privately held
company under an existing lease for a ten year period expiring on
November 30, 2003. The Blockbuster Tenant has the option to renew
the lease for two additional five year periods. The Blockbuster
Tenant is the exclusive Blockbuster Video franchisee for most of
the State of Minnesota and parts of Iowa. The Blockbuster Tenant
is obligated to pay base minimum rent each month in the amount of
$8,931 plus periodic increases beginning in the third lease year.
The Blockbuster Tenant leased the Blockbuster Property under a
triple-net lease whereby the Blockbuster Tenant pays for all
expenses related to the Blockbuster property including real estate
taxes, insurance premiums, maintenance and repair costs. The
Partnership is responsible for repairs to the roof and structure.
The General Partners believe that the costs associated with these
items will be immaterial during the lease term as the building was
completed in November 1993 and the Partnership obtained a roof
guarantee for the duration of the lease term. The Partnership may
reserve a portion of the rent for possible repairs in the future.
On February 28, 1994, the Partnership purchased the land and the
8,500 square foot building (the "Walden Books Property") occupied
by a Walden Books store located in Miami, Florida, from an
unaffiliated seller, for a purchase price of $1,680,000 plus
closing costs. The Walden Books Property was completed in November
1988 and is leased under a triple-net lease to Walden Books, Inc.
(the "Walden Books Tenant") for a minimum term ending January 31,
2009. Walden Books, Inc. is one of the largest bookstore chains in
the country with approximately 1,150 stores and gross revenues of
over one billion dollars. The Walden Books Tenant is obligated to
pay base minimum rent each month in the amount of $14,167 with
scheduled increases in rent beginning in February 1999. The Walden
Books Tenant is also obligated to pay percentage rent based on the
total annual sales which exceed a pre-established amount.
The Walden Books Tenant leased the Walden Books Property under a
triple-net lease whereby the Walden Books Tenant pays for all
expenses related to the Walden Books Property including real estate
taxes, insurance premiums and maintenance and repair costs. The
Partnership is responsible for repairs to the roof and structure.
The General Partners believe costs associated with these items will
be minimal during the lease term as the building is in good
condition. The Partnership may reserve a portion of the rent for
possible repairs in the future.
The following is a summary of the real estate and improvements
purchased by the Partnership:
Steak n Shake:
Peerless Park, Missouri
The property is located on the southeast corner of Highway 141
and Interstate I-44, approximately 16 miles southwest of downtown
St. Louis. The single-story building is 3,860 square feet situated
on a 39,500 square foot parcel of land.
Children's World Learning Center:
Arlington, Texas
The property is located at 1235 West Sublet. The building is
4,950 square feet built on 0.625 acres of land. The single-story,
wood-frame building has brick veneer exterior and has a pitched
roof with asphalt shingles. The building was constructed in 1984.
Chuck E. Cheese's Restaurants:
Ashwaubenon, Wisconsin
The Chuck E. Cheese restaurant is located at 1273 Lombardi Access
Road. The building consists of 10,183 square feet situated on a
3.385 acre parcel and was constructed in 1983 utilizing a steel
frame with birch and wood siding.
Springfield, Ohio
The Chuck E. Cheese restaurant is located at 2345 Valley Loop
Road. The building consists of 10,183 square feet situated on a
2.769 acre parcel and was constructed in 1983 utilizing a steel
frame with concrete block.
Mrs. Winner's Chicken & Biscuit Restaurant:
Oakwood, Georgia
The Mrs. Winner's Chicken & Biscuit restaurant is located at 3465
Mundy Mill Road. The building consists of 2,436 square feet
situated on a 25,700 square foot parcel and was constructed in 1983
utilizing concrete block construction with vinyl siding.
House of Fabrics:
Joliet, Illinois
The House of Fabrics store is located at 2900 Colorado Avenue.
The building consists of 20,000 square feet situated on a 1.299
acre parcel and was constructed in 1993 utilizing concrete block
construction with steel frame and metal deck roof.
In October 1994, House of Fabrics filed for protection under
Chapter 11 of the United States Bankruptcy Code. At the time of
the filing the tenant was over one month in arrears. From October
1994 until January 1996, House of Fabrics occupied the Joliet
property and paid all rents and occupancy expenses on a timely
basis.
In August 1995, House of Fabrics notified the Partnership that,
under the provisions of the bankruptcy code, it had rejected the
lease and indicated that it would vacate the property at the end of
January 1996. House of Fabrics vacated the property on January 31,
1996. The Partnership has engaged a national brokerage firm to
assist in re-leasing this property.
In 1997, the Partnership received a Federal Bankruptcy Court
award of approximately 20,800 shares of the House of Fabric with a
market value of $98,800. At December 31, 1997, the market value of
the remaining shares (approximately 17,000) that the Partnership
owns is $35,075. In March 1998, the Partnership sold its remaining
shares of the House of Fabrics stock for approximately $72,300.
Volume ShoeSource:
Blaine, Washington
The Volume ShoeSource store is located at 439 Peace Portal Drive.
The building consists of 10,900 square feet situated on a .389 acre
parcel and was fully renovated in 1992.
During the fourth quarter of 1996, a provision for impairment of
$356,400 was recorded to adjust the carrying value of the property
to its estimated net realizable value. This provision has been
recorded as a reduction of the property's cost, and allocated to
the land and building based on the original acquisition percentages
of approximately 45% (land) and 55% (building).
Joint Venture CompUSA:
Duluth, Georgia
The CompUSA store is a 25,000 square foot single story building
located on a 105,919 square foot parcel in Duluth, a suburb of
Atlanta, in the Gwinnett Place Mall Shopping Area. The single
story building was completed in March 1993.
The Partnership purchased a 70.2% interest in a joint venture
(the "Joint Venture") with affiliated public limited real estate
partnerships that acquired the land and building underlying the
CompUSA computer superstore. The seller undertook to expand the
store by an additional 1,150 square feet pursuant to a lease
amendment executed by the Tenant, as hereinafter defined. The
store was completed in March 1993, and is leased to CompUSA, Inc.
(the "Tenant"), a NYSE-listed company, for a minimum term of 15
years upon completion of the expansion space.
During the fourth quarter of 1996, a provision for impairment of
$197,000 was recorded to adjust the carrying value of the property
to its estimated net realizable value. This allowance has been
recorded as a reduction of the property's cost, and allocated to
the land and building based on the original acquisition percentages
of approximately 37% (land) and 63% (building).
Blockbuster Video:
Eagan, Minnesota
The property is located at 2075 Cliff Road and consists of a
7,028 square foot building situated on a 37,364 square foot parcel
of land. The building was constructed in 1993 of concrete block
and steel frame covered with stucco.
East Side Mario's:
Copley, Ohio
The property is located at 85 W. Montrose Avenue and consists of
a 6,240 square foot building situated on 1.76 acres of land. The
building was constructed in 1993 of concrete block and steel frame.
Walden Books Store:
Miami, Florida
The property is located on the southeast corner of Kendall Drive
and S.W. 112th Street and consists of a 8,500 square foot building
situated on .743 acres of land. The building was constructed in
1988 of masonry block with stucco and dryvit parapet.
During the fourth quarter of 1996, a provision for impairment of
$303,600 was recorded to adjust the carrying value of the property
to its estimated net realizable value. This provision has been
recorded as a reduction of the property's cost, and allocated to
the land and building based on the original acquisition percentages
of approximately 31% (land) and 69% (building).
Joint Venture Blockbuster:
Callaway, Florida
The Partnership owns a 24.0% equity interest in a joint venture
with affiliated public real estate limited partnerships that
acquired the land and building underlying a Blockbuster Video
store. The property is located at 123 N. Tydall Parkway on the
major arterial in the Panama City, Florida area. The property
contains a 6,466 square foot building located on a 40,075 square
foot parcel of land.
The following table summarizes the operations of the
Partnership's properties:
<TABLE>
BRAUVIN CORPORATE LEASE PROGRAM IV L.P.
SUMMARY OF OPERATING DATA
DECEMBER 31, 1997
<CAPTION>
1997
PERCENT OF 1997 PERCENT OF LEASE
PURCHASE ORIGINAL RENTAL RENTAL EXPIRATION RENEWAL
PROPERTIES PRICE UNITS SOLD INCOME INCOME DATES OPTIONS
<S> <C> <C> <C> <C> <C> <C>
1 STEAK N' SHAKE RESTAURANT $ 995,000 6.2% $ 121,887 8.6% 2010 2 TEN YEAR OPTIONS
1 CHILDREN'S WORLD LEARNING CENTER 425,000 2.7% 52,607 3.7% 2007 2 FIVE YEAR OPTIONS
2 CHUCK E. CHEESE'S RESTAURANTS 2,085,000 13.0% 263,375 18.6% 2005 2 FIVE YEAR OPTIONS
1 MRS. WINNER'S CHICKEN & BISCUIT 600,000 3.7% 92,553 6.5% 2013 2 FIVE YEAR OPTIONS
1 HOUSE OF FABRICS STORE 1,430,000 8.9% -- -- -- --
1 VOLUME SHOESOURCE STORE 1,627,822 10.2% 189,278 13.3% 2003 4 FIVE YEAR OPTIONS
1 BLOCKBUSTER VIDEO 905,000 5.7% 116,668 8.2% 2003 2 FIVE YEAR OPTIONS
1 EAST SIDE MARIO'S 1,435,000 9.0% 197,325 13.9% 2014 2 TEN YEAR OPTIONS
1 WALDEN BOOK CO. INC. 1,680,000 10.5% 175,698 12.4% 2009 NONE
70.2% OF 1 COMPUSA STORE 1,649,700 10.3% 183,786 13.0% 2008 4 FIVE YEAR OPTIONS
24.0% OF 1 BLOCKBUSTER VIDEO STORE 243,319 1.5% 26,220 1.8% 2006 3 FIVE YEAR OPTIONS
$13,075,841 81.7% $1,419,397 100.0%
<FN>
<F1>
NOTE - THE FORMAT OF THIS SCHEDULE DIFFERS FROM THE INCOME STATEMENT OF THE PARTNERSHIP.
THIS SCHEDULE ALLOCATES THE PARTNERSHIP'S SHARE OF PURCHASE PRICE AND RENTAL INCOME FROM EACH JOINT VENTURE.
THE INCOME STATEMENT USES THE EQUITY METHOD OF ACCOUNTING FOR THE 24% INTEREST IN THE BLOCKBUSTER VIDEO STORE,
THEREFORE, NO RENTAL INCOME IS RECORDED IN THE RENTAL INCOME ACCOUNTS FOR THE JOINT VENTURE. THE INCOME
STATEMENT CONSOLIDATES THE COMPUSA STORE, THEREFORE RECORDING 100% OF THE COMPUSA STORES RENTAL INCOME.
</FN>
</TABLE>
<PAGE>
Risk of Ownership
The possibility exists that the tenants of the Partnership's
properties as well as lease guarantors, if any, may be unable to
fulfill their obligations pursuant to the terms of their leases,
including making base rent or percentage rent payments to the
Partnership. Such a default by the tenants or a premature
termination of any one of the leases (as is the case with the House
of Fabrics) could have an adverse effect on the financial position
of the Partnership. Furthermore, the Partnership may be unable to
successfully locate a substitute tenant due to the fact that these
buildings have been designed or built primarily to house a
particular type of operation. Thus, the properties may not be
readily marketable to a new tenant without substantial capital
improvements or remodeling. Such improvements may require
expenditure of Partnership funds which might otherwise be available
for distribution.
Item 3. Legal Proceedings.
Two legal actions, as hereinafter described, are pending
against the General Partners and affiliates of such General
Partners, as well as against the Partnership on a nominal basis in
connection with the Sale. One additional legal action, which was
dismissed on January 28, 1998, had also been brought against the
General Partners and affiliates of such General Partners, as well
as against the Partnership on a nominal basis in connection with
the Sale. With respect to the pending actions the Partnership and
the General Partners and their named affiliates deny all
allegations set forth in the complaints and are vigorously
defending against such claims.
A. The Dismissed Florida Lawsuit
On September 17, 1996, a lawsuit was filed in the Circuit Court
of the Seventeenth Judicial Circuit in and for Broward County,
Florida, styled Rebecca Scialpi and Helen Friedlander v. Jerome J.
Brault, Brauvin Realty Advisors, Inc., Brauvin Realty Advisors II,
Inc., Brauvin Realty Advisors III, Inc., and Brauvin Realty
Advisors IV, Inc., James L. Brault, and Brauvin Real Estate Funds,
L.L.C. and Brauvin High Yield Fund L.P., Brauvin High Yield Fund
L.P. II, Brauvin Income Plus L.P. III, and Brauvin Corporate Lease
Program IV, L.P., Docket No. 96012807. The Partnership and the
other affiliated partnerships named in this lawsuit (the
"Affiliated Partnerships") that are proposed to be a party to a
Sale or merger with the Purchaser, were each named as a "Nominal
Defendant" in this lawsuit. The named plaintiffs were not limited
partners in the Partnership. Rather, the named plaintiffs are
limited partners in Brauvin High Yield Fund L.P. II, one of the
Affiliated Partnerships. Jerome J. Brault, the Managing General
Partner of the Partnership, and Brauvin Realty Advisors IV, Inc.,
the Corporate General Partner of the Partnership, as well as
certain corporate general partners of the Affiliated Partnerships,
were named as defendants in this lawsuit. James L. Brault, an
officer of the Corporate General Partner and the son of Jerome J.
Brault, was also named as a defendant. This lawsuit was dismissed
for want of prosecution on January 28, 1998.
B. The Illinois Christman Lawsuit
On September 18, 1996, a class action lawsuit was filed in the
United States District Court for the Northern District of Illinois,
styled M. Barbara Christman, Joseph Forte, Janet M. Toolson, John
Archbold, and Ben O. Carroll v. Brauvin Realty Advisors, Inc.,
Brauvin Realty Advisors II, Inc., Brauvin Realty Advisors III,
Inc., Brauvin Realty Advisors IV, Inc., Jerome J. Brault, Brauvin
Real Estate Funds, L.L.C. and Brauvin High Yield Fund L.P., Brauvin
High Yield Fund L.P. II, Brauvin Income Plus L.P. III, and Brauvin
Corporate Lease Program IV L.P., Docket No. 96C6025. The
Partnership and the Affiliated Partnerships are each named as a
"Nominal Defendant" in the lawsuit. Jerome J. Brault and the
Corporate General Partner of the Partnership, as well as the
corporate general partners of the Affiliated Partnerships, are
named as defendants.
The plaintiffs filed an amended complaint on October 8, 1996,
which alleges claims for breach of fiduciary duties, breaches of
the Agreement, and violation of the Illinois Deceptive Trade
Practices Act. The amended complaint seeks injunctive relief,
as well as compensatory and punitive damages, relating to the
Transaction.
On October 2, 1996, the District Court certified plaintiffs'
proposed class as all of the limited partners of the Partnership
and of the Affiliated Partnerships, and appointed plaintiffs'
counsel, The Mills Law Firm, as counsel for the class. On October
2, 1996, the District Court also conducted a hearing on plaintiffs'
motion to preliminarily enjoin the special meetings of the limited
partners and the Transaction. The District Court denied
plaintiffs' motion for a preliminary injunction at the conclusion
of the October 2, 1996 hearing.
On September 27, 1996, counsel for plaintiffs, The Mills Law
Firm, mailed a solicitation to all of the Limited Partners,
requesting that they revoke their previously-mailed proxies in
favor of the Sale. On October 11, 1996, the General Partners filed
a counterclaim against plaintiffs and their counsel, The Mills Law
Firm, alleging that plaintiffs and The Mills Law Firm violated the
federal securities laws and proxy rules by sending their September
27, 1996 letter to the Limited Partners. The plaintiffs and The
Mills Law Firm have moved to dismiss this counterclaim. The
District Court has taken this motion under advisement and has yet
to issue a ruling.
On October 10 and 11, 1996, the District Court conducted an
evidentiary hearing on the motion of the General Partners to
invalidate revocations of proxies procured as a result of The Mills
Law Firm's September 27, 1996 letter. In that evidentiary hearing,
The Mills Law Firm admitted that it violated the proxy rules by
sending its September 27, 1996 letter to the Limited Partners
without filing such letter with the Commission (as defined below)
in violation of the Commission's requirements. At the conclusion
of the hearing on October 10 and 11, the District Court found that
the General Partners have a likelihood of succeeding on the merits
with respect to their claim that the September 27, 1996 letter sent
to the Limited Partners by plaintiffs and The Mills Law Firm is
false or misleading in several significant respects.
Notwithstanding this finding, the District Court did not
invalidate the revocations of proxies resulting from The Mills Law
Firm's September 27, 1996 letter because it did not believe it
possessed the authority to do so under present law. This ruling
was appealed to the Seventh Circuit Court of Appeals. The Seventh
Circuit Court of Appeals subsequently dismissed this appeal on the
grounds that the appeal was rendered moot by the Limited Partners'
approval November 8, 1996 of the Sale.
On October 16, 1996 and on November 6, 1996, the parties filed
cross-motions for partial summary judgement addressing the
allegation in plaintiffs' amended complaint that the Agreement does
not allow the Limited Partners to vote in favor of or against the
Transaction by proxy. These cross-motions for partial summary
judgement were taken under advisement by the District Court, and
the District Court has yet to issue a ruling.
On April 2, 1997, the Court granted plaintiffs' leave to again
amend their complaint. In their second amended complaint,
plaintiffs have named the Partnership as a "Nominal Defendant."
Plaintiffs have also added a new claim, alleging that the General
Partners violated certain of the rules of the Securities and
Exchange Commission (the "Commission") by making false and
misleading statements in the Proxy. Plaintiffs also allege that
the General Partners breached their fiduciary duties, breached
various provisions of the Agreement, violated the Illinois
Deceptive Trade Practice Act, and violated section 17-305 of the
Delaware Revised Uniform Limited Partnership Act. The General
Partners deny those allegations and will continue to vigorously
defend against these claims.
On April 2, 1997, plaintiffs again requested that the District
Court enjoin the closing of the Transaction. After conducting a
lengthy hearing on May 1, 1997, the District Court denied
plaintiffs' motion to preliminarily enjoin the closing of the
Transaction. Plaintiffs filed a notice of appeal to the Seventh
Circuit Court of Appeals from the District Court's May 1, 1997
order denying plaintiffs' motion to preliminarily enjoin the
closing of the Transaction. This appeal was dismissed by the
Seventh Circuit Court of Appeals on January 23, 1998, based on the
appellate court's finding that the District Courts order of January
16, 1998 rendered the appeal moot.
On January 16, 1998, by agreement of the Partnership and the
General Partners and pursuant to a motion of the General Partners,
the District Court entered an order preventing the Partnership and
the General Partners from completing the Sale, or otherwise
disposing of all or substantially all of the Partnership's assets,
until further order of the Court.
On January 28, 1998, the District Court entered an Order of
Reference to Special Master, designating a Special Master and
vesting the Special Master with authority to resolve certain
aspects of the lawsuit subject to the District Court's review and
confirmation.
C. The Scialpi Illinois Lawsuit
On June 20, 1997, another lawsuit was filed in the United States
District Court for the Northern District of Illinois, styled
Benjamin Siegel, Rebecca Scialpi, Helen Friedlander, and BHS &
Associates, Inc. v. Jerome J. Brault, Brauvin Realty Advisors,
Inc., Brauvin Realty Advisors II, Inc., Brauvin Realty Advisors
III, Inc., Brauvin Realty Advisors IV, Inc., James L. Brault,
Brauvin Real Estate Funds LLC, Brauvin High Yield Fund L.P.,
Brauvin High Yield Fund II L.P., Brauvin Income Plus L.P. III, and
Brauvin Corporate Lease Program IV, L.P. docket number 97 C 4450.
The Partnership and the Affiliated Partnerships are each named as
"Nominal Defendant" in the lawsuit. Jerome J. Brault and the
Corporate General Partner of the Partnership, as well as the
corporate general partners of the Affiliated Partnerships, have
been named as defendants in this lawsuit. James L. Brault, an
officer of the Corporate General Partner and the son of Jerome J.
Brault, is also named as a defendant.
Notably, the complaint was filed by two of the same parties,
Scialpi and Friedlander, who were plaintiffs in the Florida
lawsuit, which is described above. As also described above,
Scialpi and Friedlander are not limited partners in the
Partnership, but are limited partners in one of the Affiliated
Partnerships, Brauvin High Yield Fund L.P. II. On August 15, 1997
the plaintiffs filed an amended complaint dropping Benjamin Siegel
as a plaintiff. The plaintiffs are also represented by the same
lawyers that represented them in the Florida lawsuit.
The complaint alleges a putative class action consisting of
claims that certain Commission rules were violated by making false
and misleading statements in the Proxy, the defendants breached
their fiduciary duties and breached the Agreement. The complaint
was consolidated with the Christman lawsuit, which is described
above, pursuant to General Rule 2.31 of the United States District
Court of the Northern District of Illinois. The General Partners
deny these allegations and intend to vigorously defend these
claims. There have been no material developments with respect to
this lawsuit since it was filed on June 20, 1997.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
<PAGE>
PART II
Item 5. Market for the Registrant's Units and Related Security
Holder Matters.
At December 31, 1997, there were 886 Limited Partners in the
Partnership. There is no established public trading market for
Units and it is not anticipated that there will be a public market
for Units. Neither the General Partners nor the Partnership are
obligated to redeem or repurchase Units, but the Partnership may,
as described under the section of the Prospectus entitled "Unit
Repurchase Program" on pages 73-74 of the Prospectus, purchase
Units under certain very limited circumstances. However, there is
no intent to redeem or purchase Units pending the Sale.
Units in the hands of a transferee will retain the same
character as in the hands of the transferor. Thus, the transferee,
whether a taxable or tax-exempt investor, who acquires a Unit from
a Class B Investor, as such term is defined in the Agreement, will
not be allocated any depreciation and, conversely, a transferee who
is a tax-exempt investor and acquires a Unit from a Class A
Investor will be allocated depreciation even though such
depreciation may not provide a benefit to it.
Pursuant to the terms of the Agreement, there are restrictions
on the ability of the Limited Partners to transfer their Units. In
all cases, the General Partners must consent to the substitution of
a Limited Partner.
Cash distributions to Limited Partners for 1997, 1996 and 1995
were $1,745,585, $632,669 and $1,296,726, respectively. Prior to
the commencement of the Partnership's proxy solicitation in August
1996, distributions of operating cash flow were paid four times per
year, 45 days after the end of each calendar quarter or were paid
monthly within 15 days of the end of the month, depending upon the
Limited Partner's preference (see Item 7). The distributions were
generated from a combination of property operations and interest
income. No amount distributed was a return of capital. Pursuant to
the terms of the Sale Agreement, net income after August 1, 1996
accrues to the Purchaser and, therefore, the net income through
July 31, 1996 will be distributed to the Limited Partners at the
time of the closing of the Sale. Since the net income of the
Partnership after August 1, 1996 accrues to the Purchaser, no
distributions of net income were paid to the Limited Partners for
the two months of August and September 1996 and the quarter ended
December 31, 1996. As a result of the delays in closing the Sale,
the Purchaser has agreed to allow periodic distributions of net
income relating to the period from January 1, 1997 until the Sale
is consummated. See Item 7.
<PAGE>
Item 6. Selected Financial Data.
BRAUVIN CORPORATE LEASE PROGRAM IV L.P.
(a Delaware limited partnership)
(not covered by Independent Auditors' Report)
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1997 1996 1995
Selected Income Statement Data:
Rental Income $1,520,046 $1,491,109 $ 1,643,736
Interest Income 40,918 33,608 31,777
Net Income(Loss) 977,509 (97,221) 1,203,510
Net Income(Loss)Per Unit (a) $ 0.59 $ (0.06) $ 0.74
Selected Balance Sheet Data:
Cash and Cash Equivalents $ 139,508 $ 753,655 $ 711,167
Land, Buildings and
Improvements 13,451,630 13,451,630 14,308,630
Total Assets 13,375,062 14,109,844 14,850,948
Cash Distributions to Limited
Partners 1,745,585 632,669 1,296,726
Cash Distributions to Limited
Partners Per Unit (a) $ 1.07 $ 0.39 $ 0.80
(a) Net income (loss) per Unit and cash distributions per Unit are
based on the average Units outstanding during the year since
they were of varying dollar amounts and percentages based upon
the dates Limited Partners were admitted to the Partnership and
additional Units were purchased through the Plan.
The above selected financial data should be read in conjunction
with the consolidated financial statements and the related notes
appearing elsewhere in this annual report.
<PAGE>
BRAUVIN CORPORATE LEASE PROGRAM IV L.P.
(a Delaware limited partnership)
(not covered by Independent Auditors' Report)
Year Ended Year Ended
December 31, December 31,
1994 1993
Selected Income Statement Data:
Rental Income $ 1,571,077 $ 639,565
Interest Income 37,754 124,814
Net Income 1,030,281 492,617
Net Income Per Unit (a) $ 0.64 $ 0.42
Selected Balance Sheet Data:
Cash and Cash Equivalents $ 569,244 $4,803,350
Land, Buildings and
Improvements 14,308,630 10,066,508
Total Assets 14,895,510 15,009,234
Cash Distributions to Limited
Partners 1,244,736 495,347
Cash Distributions to Limited
Partners Per Unit (a) $ 0.77 $ 0.43
(a) Net income per Unit and cash distributions per Unit are based on
the average Units outstanding during the year since they were of
varying dollar amounts and percentages based upon the dates
Limited Partners were admitted to the Partnership and additional
Units were purchased through the Plan.
The above selected financial data should be read in conjunction
with the consolidated financial statements and the related notes
appearing elsewhere in this annual report.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
General
Certain statements in this Annual Report that are not historical
fact constitute "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. Discussions
containing forward-looking statements may be found in this section
and in the section entitled "Business." Without limiting the
foregoing, words such as "anticipates," "expects," "intends,"
"plans," and similar expressions are intended to identify forward-
looking statements. These statements are subject to a number of
risks and uncertainties. Actual results could differ materially
from those projected in the forward-looking statements. The
Partnership undertakes no obligation to update these forward-
looking statements to reflect future events or circumstances.
Year 2000
In 1997, the Partnership initiated the conversion from its
existing accounting software to a program that is year 2000
compliant. Management has determined that the year 2000 issue will
not pose significant operational problems for its computer system.
All costs associated with this conversion are being expensed as
incurred and are not material.
Also in 1997, management of the Partnership initiated formal
communications with all of its significant third party vendors,
service providers and financial institutions to determine the
extent to which the Partnership is vulnerable to those third
parties' failure to remedy their own year 2000 issues. There can
be no guarantee that the systems of these third parties will be
timely converted and would not have an adverse effect on the
Partnership.
Liquidity and Capital Resources
The Partnership commenced an offering to the public on December
12, 1991 of 3,300,000 Units, 300,000 of which were available only
through the Plan. The Offering was anticipated to close on
December 11, 1992, but was extended until December 11, 1993 with
the appropriate governmental approvals. None of the Units were
subscribed and issued between December 12, 1991 and December 31,
1991, pursuant to the Offering. The Offering was conditioned upon
the sale of $1,200,000, which was achieved on April 27, 1992.
Prior to the commencement of the Partnership's proxy
solicitation, the Partnership raised a total of $16,008,310 through
the Offering and an additional $435,100 through the Plan through
December 31, 1997. As of December 31, 1997, Units valued at
$118,706 have been repurchased by the Partnership from Limited
Partners liquidating their original investment and have been
retired.
The Partnership purchased the land and buildings underlying a
Steak n Shake restaurant and a Children's World Learning Center in
1992. In 1993, the Partnership purchased the land and buildings
underlying two Chuck E. Cheese's restaurants, a Mrs. Winner's
Chicken & Biscuit restaurant, a House of Fabrics store, and a
Volume ShoeSource. Additionally in 1993, the Partnership acquired
a 70.2% equity interest in a joint venture with affiliated public
real estate limited partnerships that acquired the land and
building underlying a CompUSA computer superstore. The Partnership
acquired the land and buildings underlying an East Side Mario's
restaurant, a Blockbuster Video store and a Waldens Books Store in
1994. In 1996, the Partnership acquired a 24% equity interest in
a joint venture with affiliated public real estate limited
partnerships that acquired the land and building underlying a
Blockbuster Video store.
The following is additional information regarding the Partnership
acquisition during the last three years:
On October 31, 1996, the Partnership purchased a 24% equity
interest in a joint venture with affiliated public real estate
limited partnerships, the Brauvin Bay County Venture. The Bay
County Venture purchased real property upon which is operated a
newly constructed Blockbuster Video store. The property contains
6,466 square foot building located on a 40,075 square foot parcel
of land.
During the fourth quarter of 1996, the Partnership recorded a
provision for impairment of $660,000 to adjust the carrying value
of the real estate for the Volume ShoeSource ($356,400) and the
Walden Books Store ($303,600) to its estimated realizable value.
These provisions have been recorded as reductions of each
property's cost, and allocated to the land and building based on
the original acquisition percentages for each property.
During the fourth quarter of 1996, a provision for impairment of
$197,000 was recorded to adjust the carrying value of the
investment in real estate of the CompUSA property to its estimated
net realizable value. This provision has been recorded as a
reduction of the property's cost, and allocated to the land and
building based on the original acquisition percentages of
approximately 37% (land) and 63% (building).
Below is a table summarizing the historical data for distribution
rates per unit:
Distribution
Date 1997(a) 1996 1995 1994
February 15 $.2422 $.2000 $.2000 $.1625
May 15 .1093 .1875 .2000 .1750
August 15 .1767 -- .2000 .2000
November 15 .5411 -- .2000 .2500
(a) The 1997 distributions were made on March 31, 1997, July 15,
1997, October 22, 1997 and December 31, 1997.
Per the terms of the Sale, the Partnership's net earnings from
April 1996 through July 1996 were to be distributed to the Limited
Partners in conjunction with the closing of the Sale. However,
because of the lengthy delay and the uncertainty of the ultimate
closing date, the General Partners decided to make a significant
distribution on December 31, 1997 of the Partnership's earnings.
This distribution will not change the effective sales price being
received by the Partnership through the Sale; it will only adjust
the timing of the payout dollar for dollar based on these earnings
being distributed now. In addition, included in the December 31,
1997 distribution was any prior period earnings including amounts
previously reserved for anticipated closing costs. These reserves
will be re-established by the Partnership as soon as a definitive
closing date is scheduled.
Should the Sale not occur, future increases in the Partnership's
distributions will depend on increased sales at the Partnership's
properties, resulting in additional percentage rent. Rental
increases, to a lesser extent, may occur due to increases in
receipts from certain leases based upon increases in the Consumer
Price Index or scheduled increases of base rent.
Pursuant to the terms of the Sale Agreement, the Partnership
proposes to sell substantially all of the Partnership's properties
for a purchase price of $12,489,100 in cash which is approximately
$7.65 per Unit. If certain conditions of the Transaction are met,
the Partnership will be liquidated and the Class A Limited Partners
will receive a liquidating distribution of approximately $6.95 to
$7.50 per Unit in cash based upon the time such Class A Limited
Partners invested in the Partnership and Class B Limited Partners
will receive a liquidating distribution of approximately $8.44 to
$8.73 per Unit. Of the liquidating distributions (of both Class A
and Class B investors) referred to above, approximately $0.38 has
already been distributed to the Limited Partners in the December
31, 1997 distribution. The Limited Partners holding a majority of
the Units approved the Sale on November 8, 1996.
The Partnership drafted a proxy statement, which required prior
review and comment by the Securities and Exchange Commission, to
solicit proxies for use at the Special Meeting originally to be
held at the offices of the Partnership on September 24, 1996. As
a result of various pending legal issues, as described in Item 3,
the Special Meeting was adjourned to November 8, 1996 at 10:30 a.m.
The purpose of the Special Meeting was to vote upon the Sale and
certain other matters as described in the Proxy.
At the Special Meeting, Limited Partners were also asked to
approve the adoption of an amendment to the Agreement, to allow the
Partnership to sell or lease property to affiliates. Neither the
Delaware Revised Limited Partnership Act nor the Agreement provide
Limited Partners not voting in favor of the Transaction with
dissenters' appraisal rights.
The sale price to be paid to the Limited Partners in connection
with the Sale is based on the fair market value of the properties
of the Partnership (the "Assets"). Cushman & Wakefield Valuation
Advisory Services ("Cushman & Wakefield"), an independent
appraiser, the largest real estate valuation and consulting
organization in the United States, was engaged by the Partnership
to prepare an appraisal of the Assets, to satisfy the Partnership's
requirements under the Employee Retirement Income Security Act of
1974, as amended. On April 1, 1996, Cushman & Wakefield determined
the fair market value of the Assets to be $12,489,100, or $7.65 per
Unit. Subsequently, the Partnership purchased a 24% interest in
Brauvin Bay County Venture. Based on the terms of the Sale
Agreement, the fair market value of the Assets will be increased by
the amount of the investment in Brauvin Bay County Venture, and
correspondingly, the Partnership's cash holdings were reduced by
the same amount and therefore the total liquidating distribution
remains unchanged. The liquidating distribution includes all
remaining cash of the Partnership, less net earnings of the
Partnership from and after August 1, 1996 through December 31,
1996, less the Partnership's actual costs incurred and accrued
through the effective time of filing of the certificate of
dissolution, including reasonable reserves in connection with: (i)
the proxy solicitation; (ii) the Sale (as detailed in the Sale
Agreement); and (iii) the winding up of the Partnership, including
preparation of the final audit, tax return and K-1s (collectively,
the "Transaction Costs") and less all other outstanding Partnership
liabilities.
Cushman & Wakefield subsequently provided an opinion as to the
fairness of the Transaction to the Limited Partners from a
financial point of view. In its opinion, Cushman & Wakefield
advises that the price per Unit reflected in the proposed
Transaction is fair from a financial point of view to the Limited
Partners. Cushman & Wakefield's determination that a price is
"fair" does not mean that the price is the highest price which
might be obtained in the marketplace, but rather that based on the
appraised values of the properties, the price reflected in the
proposed transaction is believed by Cushman & Wakefield to be
reasonable.
Mr. Jerome J. Brault is the Managing General Partner of the
Partnership and Brauvin Realty Advisors IV, Inc. is the Corporate
General Partner. Mr. Cezar M. Froelich resigned his position as an
Individual General Partner of the Partnership effective as of
September 17, 1996. The General Partners will not receive any fees
in connection with the Transaction and will receive only a de
minimis liquidating distribution of less than $17,000 in the
aggregate in accordance with the terms of the Agreement.
The Managing General Partner and his son, James L. Brault, an
executive officer of the Corporate General Partner, will have a
minority ownership interest in the Purchaser. Therefore, the
Messrs. Brault have an indirect economic interest in consummating
the Transaction that is in conflict with the economic interests of
the Limited Partners. Mr. Froelich has no affiliation with the
Purchaser.
Although the Special Meeting was held and the necessary
approvals received, the Sale has not been completed primarily due
to the lawsuits that are still pending (see Item 3). The General
Partners believe that these lawsuits are without merit and,
therefore, continue to vigorously defend against them.
Following receipt of Limited Partner approval, representatives of
the Purchaser commenced in earnest the finalization of the
Purchaser's financing and its due diligence review of the assets of
the Partnership and those of the Affiliated Partnerships. The due
diligence process revealed certain concerns relating to potential
environmental problems at one of the properties of the Affiliated
Partnerships. The due diligence review has also raised questions
regarding the interpretation of certain terms in the leases
governing some of the Affiliated Partnerships' properties. A very
significant tenant of the Affiliated Partnerships is interpreting
certain purchase options contained in its leases in a way that
would cause the value of the properties leased by such tenant to be
significantly below the Cushman & Wakefield appraised value.
Members of management of the Partnership and the Affiliated
Partnerships have been working diligently with the Purchaser to
assess these risks and to resolve them in a way that will allow the
Sale and the related transactions to be consummated without any
changes to the terms or the sale price.
In accordance with the terms of the Sale Agreement, the General
Partners suspended all distributions to Limited Partners; however,
as a result of the unforeseen delays brought about by the
litigation and the due diligence issues highlighted above, the
General Partners felt it was appropriate that an earnings
distribution be made to the Limited Partners. Although the terms
of the Sale Agreement entered into by the Partnership and the
Purchaser provides that the assets being acquired by the Purchaser
in connection with the Sale include all earnings of the Partnership
from and after August 1, 1996, the Purchaser has agreed to allow
the Partnership to make distributions to the Limited Partners of
net earnings for the period from and after January 1, 1997 until
the Sale is consummated. In exchange, the Partnership has agreed
to extend the termination date of the Sale Agreement to March 31,
1998 to allow the Purchaser time to complete its due diligence. It
is anticipated that the Merger Agreement will be extended past
March 31, 1998 in the hope that the pending litigation will be
resolved.
Distributions of the Partnership's net earnings for the periods
January 1, 1997 to March 31, 1997, April 1, 1997 to June 30, 1997,
July 1, 1997 to September 30, 1997 and October 1, 1997 to December
31, 1997 was made to the Limited Partners on March 31, 1997, July
15, 1997, October 22, 1997 and December 31, 1997, respectively in
the amount of approximately $597,600 $178,500, $288,400 and
$883,300, respectively. Net earnings accruing after December 31,
1997 through the closing date will be included with the final cash
distribution to the Limited Partners from the Sale.
Results of Operation - Years Ended December 31, 1997 and 1996
Results of operations for the year ended December 31, 1997
reflected net income of $977,509 compared to net loss of $97,221
for the year ended December 31, 1996, an increase of approximately
$1,074,700.
Total income for the year ended December 31, 1997 was $1,610,225
as compared to $1,560,196 for the period ended December 31, 1996,
an increase of approximately $50,000. The increase in total income
was primarily the result of the Federal Bankruptcy Court's decision
awarding the Partnership stock in the House of Fabrics. The
increase in rental income is primarily the result of 1996 rental
income reflecting a nonrecurring one time charge for the reversal
of the deferred rents receivable of the House of Fabrics property,
while 1997 reflects no such adjustment.
Total expenses for the year ended December 31, 1997 was $587,249
as compared to $1,595,459 for the period ended December 31, 1996,
a decrease of approximately $1,008,000. The primary reason for the
decrease in expenses between 1997 and 1996 relate to the 1996
provision for impairment in the aggregate amount of $857,000 to
adjust the value of real estate for Volume ShoeSource, Walden Books
and CompUSA properties while no such provisions were recorded in
1997. Additionally, the decrease in expenses was related to a
decrease in Transaction costs and valuation fees of approximately
$104,000 and $45,700, respectively.
Results of Operation - Years Ended December 31, 1996 and 1995
Results of operations for the year ended December 31, 1996
reflected a net loss of $97,221 compared to net income of
$1,203,510 for the year ended December 31, 1995, a decrease of
approximately $1,300,700. The decrease in net income resulted from
an increase in expenses as a result of the Transaction, the
Partnership hiring an independent real estate company to conduct
property valuations and a provision for impairment to adjust the
carrying value of certain real estate to its net realizable value.
Total income was $1,560,196 in 1996 as compared to $1,698,451 in
1995, a decrease of approximately $138,300. The decrease in total
income is due to 1996 rental income reflecting a month of
operations of the House of Fabrics property, while 1995 reflects a
full twelve month period.
Total expenses were $1,595,459 in 1996 as compared to $433,045 in
1995, an increase of approximately $1,162,400. The increase in
expenses is primarily the result of an increase in Transaction
costs of $226,316 due to legal and other professional fees paid or
accrued as a result of the Transaction and a provision for
impairment in the aggregate amount of $857,000 to adjust the value
of real estate for the Volume ShoeSource, Walden Books and CompUSA
properties to their net realizable values. Total expenses also
increased in 1996 as compared to 1995 as a result of the
Partnership hiring an independent real estate company to conduct
property valuations to provide a valuation of the Units to satisfy
the Partnership's requirements under the Employee Retirement Income
Security Act of 1974, as amended.
Results of Operations - Years Ended December 31, 1995 and 1994
Results of operations for the year ended December 31, 1995
reflected net income of $1,203,510 compared to $1,030,281 for the
year ended December 31, 1994, an increase of $173,229. Net income
primarily increased by a decline in the expense category of
acquisition fees not capitalized of approximately $97,000, which
was a result of the Partnership being completely invested by
February 1994. An increase in rental income of approximately
$73,000 also contributed to the increase in net income when
comparing 1995 to 1994. Rental income increased due primarily to
1995 reflecting a full year of operations for the three properties
that the Partnership purchased in 1994.
Impact of Inflation
The Partnership anticipates that the operations of the
Partnership should not be significantly impacted by inflation. To
offset any potential adverse effects of inflation, the Partnership
has entered into "triple-net" leases with the tenants, making the
tenants responsible for all operating expenses, insurance and real
estate taxes. In addition, several of the leases require
escalations of rent based upon increases in the Consumer Price
Index, scheduled increases in base rents, or tenant sales.
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk.
The Partnership does not engage in any hedge transactions or
derivative financial instruments.
Item 8. Consolidated Financial Statements and Supplementary Data.
See Index to Consolidated Financial Statements and Schedule on
Page F-1 of this Form 10-K for consolidated financial statements
and financial statement schedule, where applicable.
The supplemental financial information specified in Item 302 of
Regulation S-K is not applicable.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
During the Partnership's two most recent fiscal years, there have
been no changes in, or disagreements with, the accountants.
PART III
Item 10. Directors and Executive Officers of the Partnership
The General Partners of the Partnership are:
Brauvin Realty Advisors IV, Inc., an Illinois corporation
Mr. Jerome J. Brault, individually
Brauvin Realty Advisors IV, Inc. (the "Corporate General
Partner") was formed under the laws of the State of Illinois in
1991, with its issued and outstanding shares being owned by Messrs.
Jerome J. Brault (beneficially) (50%) and Cezar M. Froelich (50%).
The principal officers and directors of the Corporate General
Partner are:
Mr. Jerome J. Brault Chairman of the Board of
Directors, President, Chief
Executive Officer and Director
Mr. B. Allen Aynessazian Treasurer and Chief Financial
Officer
Mr. James L. Brault Executive Vice President and
Secretary
The business experience during the past five years of the General
Partners, and the officers and directors of the Corporate General
Partner is as follows:
MR. JEROME J. BRAULT (age 64) chairman of the board of directors,
president and chief executive officer of the Corporate General
Partner, as well as a principal shareholder of the Corporate
General Partner. He is a member and manager of Brauvin Real Estate
Funds, L.L.C. Since 1979, he has been a shareholder, president and
a director of Brauvin/Chicago, Ltd. He is an officer, director and
one of the principal shareholders of various Brauvin entities which
act as the general partners of six other publicly registered real
estate programs. He is an officer, director and one of the
principal shareholders of Brauvin Associates, Inc., Brauvin
Management Company, Brauvin Advisory Services, Inc. and Brauvin
Securities, Inc., Illinois companies engaged in the real estate and
securities businesses. He is a director, president and chief
executive officer of Brauvin Net Lease V, Inc. Mr. Brault received
a B.S. in Business from DePaul University, Chicago, Illinois in
1959.
MR. JAMES L. BRAULT (age 37) is a executive vice president and
secretary and is responsible for the overall operations of the
Corporate General Partner and other affiliates of the Corporate
General Partner. He is a manager of Brauvin Real Estate Funds,
L.L.C. He is an officer of various Brauvin entities which act as
the general partners of six other publicly registered real estate
programs. Mr. Brault is executive vice president and assistant
secretary and is responsible for the overall operations of Brauvin
Management Company. He is also an executive vice president and
secretary of Brauvin Net Lease V, Inc. Prior to joining the
Brauvin organization in May 1989, he was a Vice President of the
Commercial Real Estate Division of the First National Bank of
Chicago ("First Chicago"), based in their Washington, D.C. office.
Mr. Brault joined First Chicago in 1983 and his responsibilities
included the origination and management of commercial real estate
loans, as well as the direct management of a loan portfolio in
excess of $150 million. Mr. Brault received a B.A. in Economics
from Williams College, Williamstown, Massachusetts in 1983 and an
M.B.A. in Finance and Investments from George Washington
University, Washington, D.C. in 1987. Mr. Brault is the son of Mr.
Jerome J. Brault.
MR. B. ALLEN AYNESSAZIAN (age 33) is the treasurer and chief
financial officer of the Corporate General Partner and other
affiliates of the Corporate General Partner. He is the chief
financial officer of various Brauvin publicly registered real
estate programs, including Brauvin Net Lease V, Inc. He is also
responsible for the overall financial accounting of Brauvin
Management Company, Brauvin Financial, Inc. and related
partnerships. He is also responsible for the Partnership's
accounting and financial reporting to regulatory agencies. He
joined the Brauvin organization in August 1996. Prior to that
time, he was the chief financial officer of Giordano's Enterprises,
a privately held, 40-restaurant, family-style pizza chain in the
Chicago metropolitan area where he worked since 1989. While at
Giordano's, Mr. Aynessazian was responsible for all accounting
functions, lease negotiations and financings of new restaurants,
equipment and general corporate debt. From 1987 to 1989, Mr.
Aynessazian worked in the accounting compliance and tax department
of KPMG Peat Marwick. Mr. Aynessazian is a certified public
accountant.
Item 11. Executive Compensation.
(a & b) The Partnership is required to pay certain fees, make
distributions and allocate a share of the profits and losses of the
Partnership to the Corporate General Partner or its affiliates as
described under the caption "Compensation Table" on pages 14 to 17
of the Prospectus, as supplemented, and "Summary of Limited
Partnership Agreement - Allocations and Distributions to the
Limited Partners" on page 63 of the Prospectus, as supplemented,
and the sections of the Agreement entitled "Distribution of
Operating Cash Flow," "Allocation of Profits, Losses and
Deductions," "Distribution of Net Sales Proceeds" and "Compensation
of General Partners and Their Affiliates" located on pages A-8 to
A-13 of the Agreement, attached as Exhibit A to the Prospectus.
The relationship of the Corporate General Partner (and its
directors and officers) to its affiliates is set forth in Item 10.
Reference is also made to Note 2 of the Notes to the Consolidated
Financial Statements filed with this annual report for a
description of such distributions and allocations.
The General Partners are entitled to receive Acquisition Fees for
services rendered in connection with the selection, purchase,
construction or development by the Partnership of any property
whether designated as real estate commissions, acquisition fees,
finders' fees, selection fees, development fees, non-recurring
management fees, consulting fees, payments for covenants not to
compete, guarantee fees, financing fees or any other similar fees
or commissions, however treated for tax or accounting purposes.
Such Acquisition Fees may not exceed such compensation as is
customarily charged in arm's-length transactions by others
rendering similar services as an ongoing public activity in the
same geographic locale and for comparable properties. The
aggregate Acquisition Fees to be paid to an affiliate of the
General Partners shall not exceed: (a) the lesser of 5% of the
gross proceeds of the Offering; or (b) such compensation as is
customarily charged in arm's-length transactions by others
rendering similar services as an ongoing public activity in the
same geographic locale and for property comparable to the property
to be purchased by the Partnership. To the extent Acquisition Fees
paid to the General Partners, their Affiliates and third parties
would cause the Partnership to invest less than 80% of the gross
proceeds of the Offering in properties, the General Partners and
their Affiliates will return those fees, so as to provide
compliance with paragraph 1, Section M of the Agreement. No such
amount was paid in 1995 or 1997 as no acquisitions were
consummated. In 1996, an acquisition fee of $14,837 was paid
related to the Bay County purchase.
In the event that the Partnership does not use more than 2% of
the gross proceeds of the Offering for the payment of legal,
accounting, escrow, filing and other fees incurred in connection
with the organization or formation of the Partnership, the
Partnership may pay the General Partners any unused portion of the
2% of the gross proceeds of the Offering allowed for organization
and offering expenses, not to exceed 1/2% of the gross proceeds of
the Offering. The General Partners will use such funds to pay
certain expenses of the Offering incurred by them not covered by
the definition of organization and Offering expenses.
An affiliate of the General Partners may provide leasing and
re-leasing services to the Partnership in connection with the
management of Partnership's properties. The property management
fee payable to an affiliate of the General Partners shall not
exceed the lesser of: (i) fees which are competitive for similar
services in the geographical area where the properties are located;
or (ii) 1% of the gross revenues of each Partnership property.
Property management fees of $14,291, $14,217 and $16,428, were
incurred in 1997, 1996 and 1995, respectively.
An affiliate of the General Partners or the General Partners will
receive a real estate brokerage commission in connection with the
disposition of Partnership properties. Such commission shall be in
an amount equal to the lesser of: (i) 3% of the sale price of the
property; or (ii) 50% of the real estate commission customarily
charged for similar services in the locale of the property being
sold; provided, however, that receipt by the General Partners or
one of their affiliates of such commission shall be subordinated to
receipt by the Limited Partners of their Current Preferred Return,
as defined in the Agreement. No real estate sales commission was
paid in 1997, 1996 or 1995. In addition, should the Sale be
consummated, affiliates of the General Partner will not receive a
real estate brokerage commission.
(c, d, e & f) Not applicable.
(g) The Partnership has no employees and pays no
employee or director compensation.
(h, i) Not applicable.
(j) Compensation Committee Interlocks and Insider
Participation. Since the Partnership has no
employees, it did not have a compensation committee
and is not responsible for the payment of any
compensation.
(k) Not applicable.
(l) Not applicable.
The following is a summary of all fees, commissions and other
expenses paid or payable to the General Partners or their
affiliates for the years ended December 31, 1997, 1996 and 1995:
1997 1996 1995
Acquisition fees $ -- $ 14,837 $ --
Selling commissions -- 4,098 16,155
Management fees 14,291 14,217 16,428
Reimbursable operating
expense 96,899 86,443 61,973
Legal fees 155 3,958 4,885
Transaction costs -- 5,626 --
As of December 31, 1997, the Partnership has made all payments
to affiliates except for $1,460 related to management fees.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
(a) No person or group is known by the Partnership to own
beneficially more than 5% of the outstanding Units.
(b) None of the officers and directors of the Corporate General
Partner purchased Units.
(c) Other than as described in the Proxy, the Partnership is
not aware of any arrangements, which may result in a change
in control of the Partnership.
No officer or director of the Corporate General Partner possesses
a right to acquire beneficial ownership of Units. The General
Partners of the Partnership will share in the profits, losses and
distributions of the Partnership as outlined in Item 11, "Executive
Compensation."
Item 13. Certain Relationships and Related Transactions.
(a & b) The Partnership is entitled to engage in various
transactions involving affiliates of the Corporate General Partner,
as described under the captions "Compensation Table" and "Conflicts
of Interest" at pages 14 to 17 and 17 to 20, respectively, of the
Prospectus, as supplemented, and the section of the Agreement
entitled "Rights, Duties and Obligations of General Partners" at
pages A-15 to A-18 of the Agreement. The relationship of the
Corporate General Partner to its affiliates is set forth in Item
10. Cezar M. Froelich, a former Individual General Partner and a
shareholder of the Corporate General Partner, is a principal of the
law firm of Shefsky & Froelich Ltd., which firm acted as securities
and real estate counsel to the Partnership and as counsel to the
Corporate General Partner and certain of its affiliates.
(c) No management persons are indebted to the Partnership.
(d) There have been no significant transactions with promoters.
<PAGE>
PART IV
Item 14. Exhibits, Consolidated Financial Statement and
Schedules, and Reports on Form 8-K.
(a) The following documents are filed as part of this report:
(1) (2) Consolidated Financial Statements and
Schedule indicated in Part II, Item 8
"Consolidated Financial Statements and
Supplementary Data." See Index to
Consolidated Financial Statements and
Schedule on page F-1 of Form 10-K.
(3) Exhibits required by the Securities and Exchange
Commission Regulation S-K, Item 601:
(21) Subsidiaries of the Registrant.
(27) Financial Data Schedule.
The following exhibits are incorporated by reference from the
Registrant's Registration Statement (File No. 33-42327) on Form
S-11 filed under the Securities Act of 1933, as amended:
Exhibit No. Description
3.(a) Restated Limited Partnership Agreement.
3.(b) Articles of Incorporation of Brauvin Realty
Advisors IV, Inc.
3.(c) By-Laws of Brauvin Realty Advisors IV, Inc.
3.(d) Amendment to the Certificate of Limited
Partnership of the Partnership.
10.(a) Escrow Agreement.
(b) Form 8-K.
None
(c) An annual report for the fiscal year 1997 will be sent
to the Limited Partners subsequent to this filing.
The following exhibits are incorporated by reference to the
Registrant's fiscal year ending December 31, 1994 Form 10-K (File
No. 0-21536):
Exhibit Description
(10)(b)(1) Management Agreement.
(28) Pages 14-20, 63, 73 and 74 of the Partnership's
Prospectus dated December 12, 1991, as
supplemented, pages A-8 to A-13 and A-15 to A-18
of the Agreement.
The following exhibits are incorporated by reference to the
Registrant's definitive proxy statement dated August 23, 1996(File
No. 0-17557):
Exhibit No. Description
(10)(c) Agreement for Purchase and Sale of Assets.
The following exhibit is incorporated by reference to the
Registrant's fiscal year ending December 31, 1996 Form 10-K (File
No. 0-21536):
Exhibit Description
(10)(d) First Amendment and Waiver to the Agreement for
Purchase and Sale of Assets.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto
duly authorized.
BRAUVIN CORPORATE LEASE PROGRAM IV L.P.
BY: Brauvin Realty Advisors IV, Inc.
Corporate General Partner
By: /s/ Jerome J. Brault
Jerome J. Brault
Chairman of the Board of
Directors, President and Chief
Executive Officer
By: /s/ James L. Brault
James L. Brault
Executive Vice
President and Secretary
By: /s/ B. Allen Aynessazian
B. Allen Aynessazian
Chief Financial Officer and
Treasurer
INDIVIDUAL GENERAL PARTNER
/s/ Jerome J. Brault
Jerome J. Brault
DATED: March 31, 1998
<PAGE>
BRAUVIN CORPORATE LEASE PROGRAM IV L.P.
(a Delaware limited partnership)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
Page
Independent Auditors' Report. . . . . . . . . . . . . . . .F-2
Consolidated Financial Statements:
Consolidated Balance Sheets, December 31, 1997 and 1996 .F-3
Consolidated Statements of Operations, for the years ended
December 31, 1997, 1996 and 1995 . . . . . . . . . . . .F-4
Consolidated Statements of Partners' Capital, for the years
ended December 31, 1997, 1996 and 1995 . . . . . . . . .F-5
Consolidated Statements of Cash Flows, for the years ended
December 31, 1997, 1996 and 1995 . . . . . . . . . . . .F-6
Notes to Consolidated Financial Statements. . . . . . . .F-7
Schedule III - Real Estate and Accumulated Depreciation,
December 31, 1997. . . . . . . . . . . . . . . . . . . . .F-27
All schedules provided for in Item 14(a)(2) of Form 10-K are either
not required, not applicable or not material.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners
Brauvin Corporate Lease Program IV L.P.
Chicago, Illinois
We have audited the accompanying consolidated balance sheets of
Brauvin Corporate Lease Program IV L.P. (a limited partnership) and
subsidiary as of December 31, 1997 and 1996, and the related
consolidated statements of operations, partners' capital, and cash
flows for each of the three years in the period ended December 31,
1997. Our audits also included the financial statement schedule
listed in the Index to Consolidated Financial Statements and
Schedule on page F-1. These consolidated financial statements and
the financial statement schedule are the responsibility of the
Partnership's management. Our responsibility is to express an
opinion on these consolidated financial statements and the
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of Brauvin
Corporate Lease Program IV L.P. and its subsidiary at December 31,
1997 and 1996, and the results of their operations and their cash
flows for each of the three years in the period ended December 31,
1997 in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material
respects the information set forth therein.
/s/ Deloitte & Touche LLP
Chicago, Illinois
February 7, 1998
<PAGE>
BRAUVIN CORPORATE LEASE PROGRAM IV L.P.
(a Delaware limited partnership)
CONSOLIDATED BALANCE SHEETS
December 31, December 31,
1997 1996
ASSETS
Investment in real estate, (Note 5):
Land $ 3,991,040 $ 3,991,040
Buildings and improvements 9,460,590 9,460,590
13,451,630 13,451,630
Less: Accumulated depreciation (1,135,602) (902,615)
Net investment in real estate 12,316,028 12,549,015
Investment in Brauvin Bay County
Venture (Note 6) 251,449 259,104
Cash and cash equivalents 139,508 753,655
Investment in marketable securities 35,075 --
Tenant receivables -- 325
Deferred rent receivable 453,999 333,099
Prepaid offering costs 175,163 175,163
Organization costs (net of
accumulated amortization:
1996-$28,000) -- 2,000
Other assets 3,840 37,483
Total Assets $13,375,062 $14,109,844
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Accounts payable and
accrued expenses $ 96,709 $ 50,054
Rent received in advance 41,611 47,146
Due to affiliate 1,460 --
Total Liabilities 139,780 97,200
MINORITY INTERESTS IN BRAUVIN
GWINNETT COUNTY VENTURE 693,157 702,443
PARTNERS' CAPITAL:
General Partners 16,995 10,794
Limited Partners 12,525,130 13,299,407
Total Partners' Capital 12,542,125 13,310,201
Total Liabilities and
Partners' Capital $13,375,062 $14,109,844
See accompanying notes to consolidated financial statements.
<PAGE>
BRAUVIN CORPORATE LEASE PROGRAM IV L.P.
(a Delaware limited partnership)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31,
1997 1996 1995
INCOME:
Rental (Note 4) $1,520,046 $1,491,109 $1,643,736
Interest 40,918 33,608 31,777
Other 49,261 35,479 22,938
Total income 1,610,225 1,560,196 1,698,451
EXPENSES:
General and administrative 215,454 182,087 146,480
Management fees (Note 3) 14,291 14,217 16,428
Amortization of
organization costs 2,000 6,000 6,000
Depreciation 232,987 264,136 264,137
Valuation fees -- 45,703 --
Transaction costs (Note 7) 122,517 226,316 --
Loss on impairment (Note 5) -- 857,000 --
Total expenses 587,249 1,595,459 433,045
Income (loss)before minority
and equity interests in
joint venture 1,022,976 (35,263) 1,265,406
Minority interest share in
Brauvin Gwinnett County
Venture's net income (62,532) (62,906) (61,896)
Equity interest in Brauvin
Bay County Venture 17,065 948 --
Net income (loss) $ 977,509 $ (97,221) $1,203,510
Net income allocated to
General Partners $ 6,201 -- --
Net income (loss) allocated to
Limited Partners $ 971,308 $ (97,221) $1,203,510
Net income (loss) per Unit
outstanding (a) $ 0.59 $ (0.06) $ 0.74
(a) Net income (loss) per Unit was based on the average Units
outstanding during the year since they were of varying dollar
amounts and percentages based upon the dates Limited Partners were
admitted to the Partnership and additional Units were purchased
through the distribution reinvestment plan (the "Plan").
See accompanying notes to consolidated financial statements.
<PAGE>
BRAUVIN CORPORATE LEASE PROGRAM IV L.P.
(a Delaware limited partnership)
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
For the years ended December 31, 1997, 1996 and 1995
General Limited
Partners Partners* Total
Balance, January 1, 1995 $ 10,794 $14,003,907 $14,014,701
Contributions, net -- 136,937 136,937
Selling commissions and
other offering costs -- (19,395) (19,395)
Net income -- 1,203,510 1,203,510
Cash distributions -- (1,296,726) (1,296,726)
Balance, December 31, 1995 10,794 14,028,233 14,039,027
Contributions, net -- 5,982 5,982
Selling commissions and
other offering costs -- (4,918) (4,918)
Net loss -- (97,221) (97,221)
Cash distributions -- (632,669) (632,669)
Balance, December 31, 1996 10,794 13,299,407 13,310,201
Net income 6,201 971,308 977,509
Cash distributions -- (1,745,585) (1,745,585)
Balance, December 31, 1997 $ 16,995 $12,525,130 $12,542,125
* Total Units outstanding, including those raised through the
Plan, at December 31, 1997, 1996 and 1995 were 1,632,510,
1,632,510 and 1,632,872, respectively. Cash distributions to
Limited Partners per Unit were approximately $1.07, $0.39 and
$0.80 for the years ended December 31, 1997, 1996 and 1995,
respectively. Cash distributions to Limited Partners per Unit
are based on the average Units outstanding during the year
since they were of varying dollar amounts and percentages based
upon the dates Limited Partners were admitted to the
Partnership and additional Units were purchased through the
Plan.
See accompanying notes to consolidated financial statements.
<PAGE>
BRAUVIN CORPORATE LEASE PROGRAM IV L.P.
(a Delaware limited partnership)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31,
1997 1996 1995
Cash flows from operating activities:
Net income (loss) $977,509 $ (97,221)$1,203,510
Adjustments to reconcile
net income(loss)to net cash
provided by operating activities:
Depreciation and amortization 234,987 270,136 270,137
Provision for impairment -- 857,000 --
Minority interests in Brauvin Gwinnett
County Venture's net income 62,532 62,906 61,896
Equity interest in Brauvin Bay
County Venture's net income (17,065) (948) --
Decrease (increase) in tenant
receivable 325 (325) 40,587
Increase in deferred rent receivable (120,900) (91,980) (97,631)
Decrease in due from affiliates -- 7,627 6,503
Decrease (increase) in other assets 33,643 (582) (36,351)
Increase (decrease) in accounts
payable and accrued expenses 46,655 16,394 (69,701)
(Decrease)increase in rent
received in advance (5,535) (20,059) 17,199
Increase (decrease)in due
to affiliates 1,460 -- (802)
Net cash provided by
operating activities 1,213,611 1,002,948 1,395,347
Cash flows from investing activities:
Increase in investment of marketable
securities (35,075) -- --
Investment in Brauvin Bay County Venture -- (258,156) --
Distribution from Brauvin
Bay County Venture 24,720 -- --
Cash provided by (used in)
investing activities (10,355) (258,156) --
Cash flows from financing activities:
Sale of Units, net of liquidations, selling
commissions and other offering costs -- 1,884 120,782
Cash distributions to
Limited Partners (1,745,585) (632,669)(1,296,726)
Cash distribution to minority
interests in Brauvin
Gwinnett County Venture (71,818) (71,519) (77,480)
Net cash used in financing
activities (1,817,403) (702,304)(1,253,424)
Net (decrease) increase in cash and
cash equivalents (614,147) 42,488 141,923
Cash and cash equivalents at beginning
of year 753,655 711,167 569,244
Cash and cash equivalents
at end of year $ 139,508 $753,655 $ 711,167
See accompanying notes to consolidated financial statements.
<PAGE>
BRAUVIN CORPORATE LEASE PROGRAM IV L.P.
(a Delaware limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 1997, 1996 and 1995
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Brauvin Corporate Lease Program IV L.P. (the "Partnership") is
a Delaware limited partnership formed on August 7, 1991 for the
purpose of acquiring debt-free ownership of existing,
income-producing retail and other commercial properties
predominantly all of which will be subject to "triple-net" leases.
It was anticipated that these properties will be leased primarily
to corporate lessees of national and regional retail businesses,
service providers and other users consistent with "triple-net"
lease properties. The leases provide for a base minimum annual
rent and increases in rent such as through participation in gross
sales above a stated level, fixed increases on specific dates or
indexation of rent to indices such as the Consumer Price Index.
The General Partners of the Partnership are Brauvin Realty Advisors
IV, Inc. and Jerome J. Brault. Brauvin Realty Advisors IV, Inc. is
owned by Messrs. Brault (beneficially)(50%) and Cezar M. Froelich
(50%). Mr. Froelich resigned as a director of the Corporate
General Partner in December 1994 and as an Individual General
Partner effective as of September 17, 1996. Brauvin Securities,
Inc., an affiliate of the General Partners, is the selling agent of
the Partnership. The Partnership is managed by an affiliate of the
General Partners.
The Partnership filed a Registration Statement on Form S-11 with
the Securities and Exchange Commission which was declared effective
on December 12, 1991. Per the terms of the Restated Limited
Partnership Agreement of the Partnership (the "Agreement"), the
minimum of $1,200,000 of limited partnership interests of the
Partnership (the "Units") necessary for the Partnership to commence
operations was achieved on April 27, 1992. The Partnership's
offering was anticipated to close on December 11, 1992 but the
Partnership obtained an extension until December 11, 1993. A total
of 1,600,831 Units were sold to the public through the offering at
$10 per Unit ($16,008,310). Through December 31, 1997, 1996 and
1995, the Partnership has sold $16,443,810, $16,443,810 and
$16,402,428 of Units, respectively. These totals include $435,100,
$435,100 and $394,118 of Units, respectively, raised by Limited
Partners who utilized their distributions of Operating Cash Flow to
purchase additional Units through the Partnership's distribution
reinvestment plan (the "Plan"). Units valued at $118,706, $118,706
and $83,706 have been repurchased by the Partnership from Limited
Partners liquidating their investment in the Partnership and have
been retired as of December 31, 1997, 1996 and 1995, respectively.
As of December 31, 1997, the Plan participants own Units which
approximate 3% of the total Units sold.
The Partnership has acquired the land and buildings underlying
a Steak n Shake restaurant, a Children's World Learning Center, two
Chuck E. Cheese's restaurants, a Mrs. Winner's Chicken and Biscuit
restaurant, a House of Fabrics store, a Volume ShoeSource store, an
East Side Mario's Restaurant, a Blockbuster Video Store, and a
Walden Books Store. In addition, the Partnership has acquired a
70.2% and 24.0% equity interest in two joint ventures with three
entities affiliated with the Partnership. These ventures own the
land and building underlying a CompUSA store and a Blockbuster
Video store.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Management's Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from these estimates.
Accounting Method
The accompanying financial statements have been prepared using
the accrual method of accounting.
Rental Income
Rental income is recognized on a straight-line basis over the
life of the related leases. Differences between rental income
earned and amounts due per the respective lease agreements are
credited or charged, as applicable, to deferred rent receivable.
Federal Income Taxes
Under the provisions of the Internal Revenue Code, the
Partnership's income and losses are reportable by the partners on
their respective income tax returns. Accordingly, no provision is
made for Federal income taxes in the consolidated financial
statements. However, in certain instances, the Partnership has
been required under applicable state law to remit directly to the
tax authorities amounts representing withholding from distributions
paid to partners.
Consolidation of Joint Venture
The Partnership owns a 70.2% equity interest in a joint venture,
which owns the land and the building underlying one CompUSA store.
The accompanying financial statements have consolidated 100% of the
assets, liabilities, operations and partners' capital of Brauvin
Gwinnett County Venture. All significant intercompany accounts
have been eliminated.
Investment in Joint Venture
The Partnership owns a 24% equity interest in a joint venture,
Brauvin Bay County Venture, which owns one Blockbuster Video store.
The accompanying financial statements include the investment in
Brauvin Bay County Venture using the equity method of accounting.
Investment in Real Estate
At December 31, 1997 and 1996, the Partnership has classified
its real estate investments as held for sale in recognition of the
proposed transaction (see Note 7), and the properties are stated at
the lower of cost including acquisition costs, or net realizable
value. Depreciation expense is computed on a straight-line basis
over approximately 39 years.
In 1995, the Partnership adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed Of" (SFAS
121). In 1996, the Partnership engaged Cushman & Wakefield
Valuation Advisory Services to prepare an appraisal of the
Partnership's properties. As a result of the reclassification of
the real estate investments to be held for sale, and based upon
this appraisal, the Partnership recorded a provision for the
impairment of assets of $857,000 (see Note 5).
Organization and Offering Costs
Organization costs represent costs incurred in connection with
the organization and formation of the Partnership. Organization
costs were amortized over a period of five years using the
straight-line method. Offering costs represent costs incurred in
selling Units, such as the printing of the Prospectus and marketing
materials, and have been recorded as a reduction of Limited
Partners' capital.
Prepaid offering costs represent amounts in excess of the
defined percentages of the gross proceeds. Prior to the
commencement of the Partnership's proxy solicitation (See Note 7),
gross proceeds were expected to increase due to the purchase of
additional Units through the Plan and the prepaid offering costs
would be transferred to offering costs and treated as a reduction
in Partners' Capital.
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid debt
instruments with an original maturity within three months from date
of purchase.
Estimated Fair Value of Financial Instruments
Disclosure of the estimated fair value of financial instruments
is made in accordance with the requirements of Statement of
Financial Accounting Standards No. 107, "Disclosures About Fair
Value of Financial Instruments." The estimated fair value amounts
have been determined by using available market information and
appropriate valuation methodologies. However, considerable
judgement is necessarily required in interpreting market data to
develop estimates of fair value.
The fair value estimates presented herein are based on
information available to management as of December 31, 1997 and
1996, but may not necessarily be indicative of the amounts that the
Partnership could realize in a current market exchange. The use of
different assumptions and/or estimation methodologies may have a
material effect on the estimated fair value amounts.
The carrying amounts of the following items are a reasonable
estimate of fair value: cash and cash equivalents; investment in
marketable securities; tenant receivables; accounts payable and
accrued expenses; rent received in advance and due to affiliate.
(2) PARTNERSHIP AGREEMENT
Distributions
All Operating Cash Flow, as defined in the Agreement, during the
period commencing with the date the Partnership accepts
subscriptions for Units totaling $1,200,000 and terminating on the
Termination Date, as defined in the Prospectus, shall be
distributed to the Limited Partners on a quarterly basis.
Distributions of Operating Cash Flow, if available, shall be made
within 45 days following the end of each calendar quarter or are
paid monthly within 15 days of the end of the month, depending upon
the Limited Partner's preference, commencing with the first quarter
following the Termination Date. Operating Cash Flow during such
period shall be distributed as follows: (a) first, to the Limited
Partners until the Limited Partners receive an amount equal to a 9%
non-cumulative, non-compounded annual return on Adjusted
Investment, as defined in the Agreement, commencing on the last day
of the calendar quarter in which the Unit was purchased (the
"Current Preferred Return"); and (b) thereafter, any remaining
amounts will be distributed 98% to the Limited Partners (on a pro
rata basis) and 2% to the General Partners.
The net proceeds of a sale or refinancing of a Partnership
property shall be distributed as follows:
* first, pro rata to the Limited Partners until each Limited
Partner has received an amount equal to a 10% cumulative,
non-compounded, annual return of Adjusted Investment (the
"Cumulative Preferred Return");
* second, to the Limited Partners until each Limited Partner
has received an amount equal to the amount of his Adjusted
Investment, apportioned pro rata based on the amount of the
Adjusted Investment; and
* thereafter, 95% to the Limited Partners (apportioned pro rata
based on Units) and 5% to the General Partners.
Profits and Losses
Net profits and losses from operations of the Partnership
[computed without regard to any allowance for depreciation or cost
recovery deductions under the Internal Revenue Code of 1986, as
amended (the "Code")] for each taxable year of the Partnership
shall be allocated to each Partner in the same ratio as the cash
distributions received by such Partner attributable to that period
bears to the total cash distributed by the Partnership. In the
event that there are no cash distributions, net profits and losses
from operations of the Partnership (computed without regard to any
allowance for depreciation or cost recovery deductions under the
Code) shall be allocated 99% to the Limited Partners and 1% to the
General Partners. Notwithstanding the foregoing, all depreciation
and cost recovery deductions allowed under the Code shall be
allocated 2% to the General Partners and 98% to the Class A
Investors, as defined in the Agreement.
The net profit of the Partnership from any sale or other
disposition of a Partnership property shall be allocated (with
ordinary income being allocated first) as follows: (a) first, an
amount equal to the aggregate deficit balances of the Partners'
Capital Accounts, as such term is defined in the Agreement, shall
be allocated to each Partner who or which has a deficit Capital
Account balance in the same ratio as the deficit balance of such
Partner's Capital Account bears to the aggregate of the deficit
balances of all Partners' Capital Accounts; (b) second, to the
Limited Partners until the Capital Account balances of the Limited
Partners are equal to any unpaid Cumulative Preferred Return as of
such date; (c) third, to the Limited Partners until the Capital
Account balances of the Limited Partners are equal to the sum of
the amount of their Adjusted Investment plus any unpaid Cumulative
Preferred Return; (d) fourth, to the General Partners until their
Capital Account balances are equal to any previously subordinated
fees; and (e) thereafter, 95% to the Limited Partners and 5% to the
General Partners. The net loss of the Partnership from any sale or
other disposition of a Partnership property shall be allocated as
follows: (a) first, an amount equal to the aggregate positive
balances in the Partners' Capital Accounts, to each Partner in the
same ratio as the positive balance in such Partner's Capital
Account bears to the aggregate of all Partners' positive Capital
Accounts balances; and (b) thereafter, 95% to the Limited Partners
and 5% to the General Partners.
(3) TRANSACTIONS WITH RELATED PARTIES
The Partnership pays an affiliate of the General Partners an
acquisition fee in the amount of up to 5% of the gross proceeds of
the Partnership's offering for the services rendered in connection
with the process pertaining to the acquisition of a property.
Acquisition fees related to the properties not ultimately purchased
by the Partnership are expensed as incurred.
The Partnership paid an affiliated entity a non-accountable
selling expense allowance in an amount equal to 2% of the gross
proceeds of the Partnership's offering, a portion of which may be
reallowed to participating dealers.
In the event that the Partnership does not use more than 2% of
the gross proceeds of the offering for the payment of legal,
accounting, escrow, filing and other fees incurred in connection
with the organization or formation of the Partnership, the
Partnership may pay the General Partners any unused portion of the
2% of the gross proceeds of the offering allowed for organization
and offering expenses, not to exceed 1/2% of the gross proceeds of
the offering. The General Partners will use such funds to pay
certain expenses of the offering incurred by them not covered by
the definition of organization and offering expenses.
An affiliate of the General Partners provides leasing and
re-leasing services to the Partnership in connection with the
management of Partnership properties. The property management fee
payable to an affiliate of the General Partners is 1% of the gross
revenues of each Partnership property.
An affiliate of the General Partners or the General Partners
will receive a real estate brokerage commission in connection with
the disposition of Partnership properties. Such commission will be
in an amount equal to the lesser of: (i) 3% of the sale price of
the property; or (ii) 50% of the real estate commission customarily
charged for similar services in the locale of the property being
sold; provided, however, that receipt by the General Partners or
one of their affiliates of such commission is subordinated to
receipt by the Limited Partners of their Current Preferred Return.
An affiliate of one of the General Partners provided securities
and real estate counsel to the Partnership.
Fees, commissions and other expenses paid or payable to the
General Partners or its affiliates for the years ended December 31,
1997, 1996 and 1995 were as follows:
1997 1996 1995
Acquisition fees $-- $ 14,837 $ --
Selling commissions -- 4,098 16,155
Management fees 14,291 14,217 16,428
Reimbursable operating
expense 96,899 86,443 61,973
Legal fees 155 3,958 4,885
Transaction costs -- 5,626 --
As of December 31, 1997, the Partnership has made all payments
to affiliates except for $1,460 related to management fees.
(4) LEASES
The Partnership's rental income is principally obtained from
tenants through rental payments provided under triple-net
noncancelable operating leases. The leases provide for a base
minimum annual rent and increases in rent such as through
participation in gross sales above a stated level.
The following is a schedule of noncancelable future minimum
rental payments due to the Partnership under operating leases of
Partnership properties as of December 31, 1997:
Year Ending December 31:
1998 $ 1,394,474
1999 1,445,637
2000 1,460,730
2001 1,490,772
2002 1,493,994
Thereafter 8,796,999
$16,082,606
Additional rent based on percentages of tenant sales increases
was $9,753, $18,877 and $21,620 in 1997, 1996 and 1995,
respectively.
(5) PROVISION FOR IMPAIRMENT
During the fourth quarter of 1996 the Partnership recorded a
provision for impairment of $857,000 to adjust the carrying values
of real estate for the Volume ShoeSource ($356,400), the Walden
Books Store ($303,600) and the investment in the Brauvin Gwinnett
County Venture ($197,000) to their estimated net realizable values.
This provision for impairment has been recorded as a reduction of
each property's cost, and allocated to the land and building based
on the original acquisition percentages.
(6) INVESTMENT IN JOINT VENTURE
The Partnership owns an equity interest in the Brauvin Bay County
Venture and reports its investment on the equity method. The
following are condensed financial statements for the Brauvin Bay
County Venture:
BRAUVIN BAY COUNTY VENTURE
December 31, 1997 December 31,1996
Land and buildings, net $1,051,588 $1,069,277
Other assets 11,989 13,531
$1,063,577 $1,082,808
Liabilities $ 13,820 $ 1,155
Partners' capital 1,049,757 1,801,653
$1,063,577 $1,082,808
Period from
October 31,1996
Year Ended (inception) to
December 31, December 31,
1997 1996
Rental income $109,985 $18,502
Expenses:
Depreciation 17,689 2,898
Management fees 1,178 191
Operating and
administrative 20,014 11,463
38,881 14,552
Net income $ 71,104 $ 3,950
(7) SALE OF PROPERTIES AND LITIGATION
Sale of Properties
Pursuant to the terms of an agreement of purchase and sale of
assets dated as of June 14, 1996, as amended March 24, 1997, June
30, 1997, September 30, 1997 and December 31, 1997 (the "Sale
Agreement"), the Partnership proposes to sell substantially all of
the Partnership's properties (the "Assets") to Brauvin Real Estate
Funds L.L.C., a Delaware limited liability company affiliated with
certain of the General Partners (the "Purchaser"), for a purchase
price of $12,489,100, in cash, which is approximately $7.65 per
Unit. If certain conditions of the Transaction are met, the
Partnership will be liquidated and the Class A Limited Partners
will receive a liquidating distribution of approximately $6.95 to
$7.50 per Unit in cash based upon the time such Class A Limited
Partners invested in the Partnership and Class B Limited Partners
will receive a liquidating distribution of approximately $8.44 to
$8.73 per Unit. Of the liquidating distributions (of both Class A
and Class B investors) referred to above, approximately $0.38 has
already been distributed to the Limited Partners. The Limited
Partners holding a majority of the Units approved the Sale on
November 8, 1996. In approving the Sale, the Limited Partners also
approved the adoption of an amendment to the Agreement, to allow
the Partnership to sell or lease property to affiliates (this
amendment, together with the Sale shall be referred to herein as
the "Transaction").
The sale price to be paid to the Limited Partners in connection
with the Sale is based on the fair market value of the properties
of the Partnership (the "Assets"). Cushman & Wakefield Valuation
Advisory Services ("Cushman & Wakefield"), an independent
appraiser, the largest real estate valuation and consulting
organization in the United States, was engaged by the Partnership
to prepare an appraisal of the Assets, to satisfy the Partnership's
requirements under the Employee Retirement Income Security Act of
1974, as amended. On April 1, 1996, Cushman & Wakefield determined
the fair market value of the Assets to be $12,489,100, or $7.65 per
Unit. Subsequently, the Partnership purchased a 24% interest in
Brauvin Bay County Venture. Based on the terms of the Sale
Agreement, the fair market value of the Assets will be increased by
the amount of the investment in Brauvin Bay County Venture, and
correspondingly, the Partnership's cash holdings were reduced by
the same amount and therefore the total liquidating distribution
remains unchanged. The liquidating distribution includes all
remaining cash of the Partnership, less net earnings of the
Partnership from and after August 1, 1996 through December 31,
1996, less the Partnership's actual costs incurred and accrued
through the effective time of filing of the certificate of
dissolution, including reasonable reserves in connection with: (i)
the proxy solicitation; (ii) the Sale (as detailed in the Sale
Agreement); and (iii) the winding up of the Partnership, including
preparation of the final audit, tax return and K-1s (collectively,
the "Transaction Costs") and less all other outstanding Partnership
liabilities.
The General Partners will not receive any fees in connection with
the Transaction and will receive only a de minimis liquidating
distribution of less than $17,000 in the aggregate in accordance
with the terms of the Partnership Agreement.
The Managing General Partner and his son, James L. Brault, an
executive officer of the Corporate General Partner, will have a
minority ownership interest in the Purchaser.
The Sale has not been completed primarily due to certain
litigation, as described below, that is still pending. The General
Partners believe that these lawsuits are without merit and,
therefore, continue to vigorously defend against them.
Following receipt of Limited Partner approval, the Purchaser
commenced the finalization of the Purchaser's financing and its due
diligence review of the assets of the Partnership and those of the
Affiliated Partnerships (as defined below). The due diligence
process has revealed certain concerns relating to a potential
environmental problem at one of the properties of the Affiliated
Partnerships. The due diligence review has also raised questions
regarding the interpretation of certain terms in the leases
governing some of the Affiliated Partnerships' properties. A very
significant tenant of the Affiliated Partnerships is interpreting
certain purchase options contained in its leases in a way that
would cause the value of the properties leased by such tenant to be
significantly below the Cushman & Wakefield appraised value.
Members of management of the Partnership and the Affiliated
Partnerships have been working diligently with the Purchaser to
assess these risks and to resolve them in a way that will allow the
Sale and the related transactions to be consummated without any
changes to the terms or the sale price.
In accordance with the terms of the Sale Agreement, the General
Partners suspended all distributions to Limited Partners, however,
as a result of the unforeseen delays brought about by the
litigation and the due diligence issues highlighted above, the
General Partners felt it was appropriate that an earnings
distribution be made to the Limited Partners. Although the terms
of the Sale Agreement entered into by the Partnership and the
Purchaser provide that the Assets being acquired by the Purchaser
in connection with the Sale include all earnings of the Partnership
from and after August 1, 1996, the Purchaser has agreed to allow
the Partnership to make distributions to the Limited Partners of
net earnings for the period from and after January 1, 1997 until
the Sale is consummated. In exchange, the Partnership has agreed
to extend the termination date of the Sale Agreement to March 31,
1998. It is anticipated that the Sale Agreement will be extended
past March 31, 1998 in the hope that the pending litigation will be
resolved.
Distributions of the Partnership's net earnings for the periods
January 1, 1997 to March 31, 1997, April 1, 1997 to June 30, 1997,
July 1, 1997 to September 30, 1997 and October 1, 1997 to December
31, 1997 was made to the Limited Partners on March 31, 1997, July
15, 1997, October 22, 1997 and December 31, 1997 respectively in
the amount of approximately $597,600 $178,500, $288,400 and
$883,300, respectively. Net earnings accruing after December 31,
1997 through the closing date will be included with the final cash
distribution to the Limited Partners from the Sale.
Litigation
Two legal actions, as hereinafter described, are pending against
the General Partners and affiliates of such General Partners, as
well as against the Partnership on a nominal basis in connection
with the Sale. One additional legal action, which was dismissed on
January 28, 1998, had also been brought against the General
Partners and affiliates of such General Partners, as well as
against the Partnership on a nominal basis in connection with the
Sale. With respect to the pending actions the Partnership and the
General Partners and their named affiliates deny all allegations
set forth in the complaints and are vigorously defending against
such claims.
A. The Dismissed Florida Lawsuit
On September 17, 1996, a lawsuit was filed in the Circuit Court
of the Seventeenth Judicial Circuit in and for Broward County,
Florida, styled Rebecca Scialpi and Helen Friedlander v. Jerome J.
Brault, Brauvin Realty Advisors, Inc., Brauvin Realty Advisors II,
Inc., Brauvin Realty Advisors III, Inc., and Brauvin Realty
Advisors IV, Inc., James L. Brault, and Brauvin Real Estate Funds,
L.L.C. and Brauvin High Yield Fund L.P., Brauvin High Yield Fund
L.P. II, Brauvin Income Plus L.P. III, and Brauvin Corporate Lease
Program IV, L.P., Docket No. 96012807. The Partnership and the
other affiliated partnerships named in this lawsuit (the
"Affiliated Partnerships") that are proposed to be a party to a
Sale or merger with the Purchaser, were each named as a "Nominal
Defendant" in this lawsuit. The named plaintiffs were not limited
partners in the Partnership. Rather, the named plaintiffs are
limited partners in Brauvin High Yield Fund L.P. II, one of the
Affiliated Partnerships. Jerome J. Brault, the Managing General
Partner of the Partnership, and Brauvin Realty Advisors IV, Inc.,
the Corporate General Partner of the Partnership, as well as
certain corporate general partners of the Affiliated Partnerships,
were named as defendants in this lawsuit. James L. Brault, an
officer of the Corporate General Partner and the son of Jerome J.
Brault, was also named as a defendant. This lawsuit was dismissed
for want of prosecution on January 28, 1998.
B. The Illinois Christman Lawsuit
On September 18, 1996, a class action lawsuit was filed in the
United States District Court for the Northern District of Illinois,
styled M. Barbara Christman, Joseph Forte, Janet M. Toolson, John
Archbold, and Ben O. Carroll v. Brauvin Realty Advisors, Inc.,
Brauvin Realty Advisors II, Inc., Brauvin Realty Advisors III,
Inc., Brauvin Realty Advisors IV, Inc., Jerome J. Brault, Brauvin
Real Estate Funds, L.L.C. and Brauvin High Yield Fund L.P., Brauvin
High Yield Fund L.P. II, Brauvin Income Plus L.P. III, and Brauvin
Corporate Lease Program IV L.P., Docket No. 96C6025. The
Partnership and the Affiliated Partnerships are each named as a
"Nominal Defendant" in the lawsuit. Jerome J. Brault and the
Corporate General Partner of the Partnership, as well as the
corporate general partners of the Affiliated Partnerships, are
named as defendants.
The plaintiffs filed an amended complaint on October 8, 1996,
which alleges claims for breach of fiduciary duties, breaches of
the Agreement, and violation of the Illinois Deceptive Trade
Practices Act. The amended complaint seeks injunctive relief,
as well as compensatory and punitive damages, relating to the
Transaction.
On October 2, 1996, the District Court certified plaintiffs'
proposed class as all of the limited partners of the Partnership
and of the Affiliated Partnerships, and appointed plaintiffs'
counsel, The Mills Law Firm, as counsel for the class. On October
2, 1996, the District Court also conducted a hearing on plaintiffs'
motion to preliminarily enjoin the special meetings of the limited
partners and the Transaction. The District Court denied
plaintiffs' motion for a preliminary injunction at the conclusion
of the October 2, 1996 hearing.
On September 27, 1996, counsel for plaintiffs, The Mills Law
Firm, mailed a solicitation to all of the Limited Partners,
requesting that they revoke their previously-mailed proxies in
favor of the Sale. On October 11, 1996, the General Partners filed
a counterclaim against plaintiffs and their counsel, The Mills Law
Firm, alleging that plaintiffs and The Mills Law Firm violated the
federal securities laws and proxy rules by sending their September
27, 1996 letter to the Limited Partners. The plaintiffs and The
Mills Law Firm have moved to dismiss this counterclaim. The
District Court has taken this motion under advisement and has yet
to issue a ruling.
On October 10 and 11, 1996, the District Court conducted an
evidentiary hearing on the motion of the General Partners to
invalidate revocations of proxies procured as a result of The Mills
Law Firm's September 27, 1996 letter. In that evidentiary hearing,
The Mills Law Firm admitted that it violated the proxy rules by
sending its September 27, 1996 letter to the Limited Partners
without filing such letter with the Commission (as defined below)
in violation of the Commission's requirements. At the conclusion
of the hearing on October 10 and 11, the District Court found that
the General Partners have a likelihood of succeeding on the merits
with respect to their claim that the September 27, 1996 letter sent
to the Limited Partners by plaintiffs and The Mills Law Firm is
false or misleading in several significant respects.
Notwithstanding this finding, the District Court did not
invalidate the revocations of proxies resulting from The Mills Law
Firm's September 27, 1996 letter because it did not believe it
possessed the authority to do so under present law. This ruling
was appealed to the Seventh Circuit Court of Appeals. The Seventh
Circuit Court of Appeals subsequently dismissed this appeal on the
grounds that the appeal was rendered moot by the Limited Partners'
approval November 8, 1996 of the Sale.
On October 16, 1996 and on November 6, 1996, the parties filed
cross-motions for partial summary judgement addressing the
allegation in plaintiffs' amended complaint that the Agreement does
not allow the Limited Partners to vote in favor of or against the
Transaction by proxy. These cross-motions for partial summary
judgement were taken under advisement by the District Court, and
the District Court has yet to issue a ruling.
On April 2, 1997, the Court granted plaintiffs' leave to again
amend their complaint. In their second amended complaint,
plaintiffs have named the Partnership as a "Nominal Defendant."
Plaintiffs have also added a new claim, alleging that the General
Partners violated certain of the rules of the Securities and
Exchange Commission (the "Commission") by making false and
misleading statements in the Proxy. Plaintiffs also allege that
the General Partners breached their fiduciary duties, breached
various provisions of the Agreement, violated the Illinois
Deceptive Trade Practice Act, and violated section 17-305 of the
Delaware Revised Uniform Limited Partnership Act. The General
Partners deny those allegations and will continue to vigorously
defend against these claims.
On April 2, 1997, plaintiffs again requested that the District
Court enjoin the closing of the Transaction. After conducting a
lengthy hearing on May 1, 1997, the District Court denied
plaintiffs' motion to preliminarily enjoin the closing of the
Transaction with the Purchaser. Plaintiffs filed a notice of
appeal to the Seventh Circuit Court of Appeals from the District
Court's May 1, 1997 order denying plaintiffs' motion to
preliminarily enjoin the closing of the Transaction. This appeal
was dismissed by the Seventh Circuit Court of Appeals on January
23, 1998, based on the appellate court's finding that the District
Courts order of January 16, 1998 rendered the appeal moot.
On January 16, 1998, by agreement of the Partnership and the
General Partners and pursuant to a motion of the General Partners,
the District Court entered an order preventing the Partnership and
the General Partners from completing the Sale, or otherwise
disposing of all or substantially all of the Partnership's assets,
until further order of the Court.
On January 28, 1998, the District Court entered an Order of
Reference to Special Master, designating a Special Master and
vesting the Special Master with authority to resolve certain
aspects of the lawsuit subject to the District Court's review and
confirmation.
C. The Scialpi Illinois Lawsuit
On June 20, 1997, another lawsuit was filed in the United States
District Court for the Northern District of Illinois, styled
Benjamin Siegel, Rebecca Scialpi, Helen Friedlander, and BHS &
Associates, Inc. v. Jerome J. Brault, Brauvin Realty Advisors,
Inc., Brauvin Realty Advisors II, Inc., Brauvin Realty Advisors
III, Inc., Brauvin Realty Advisors IV, Inc., James L. Brault,
Brauvin Real Estate Funds LLC, Brauvin High Yield Fund L.P.,
Brauvin High Yield Fund II L.P., Brauvin Income Plus L.P. III, and
Brauvin Corporate Lease Program IV, L.P. docket number 97 C 4450.
The Partnership and the Affiliated Partnerships are each named as
"Nominal Defendant" in the lawsuit. Jerome J. Brault and the
Corporate General Partner of the Partnership, as well as the
corporate general partners of the Affiliated Partnerships, have
been named as defendants in this lawsuit. James L. Brault, an
officer of the Corporate General Partner and the son of Jerome J.
Brault, is also named as a defendant.
Notably, the complaint was filed by two of the same parties,
Scialpi and Friedlander, who were plaintiffs in the Florida
lawsuit, which is described above. As also described above,
Scialpi and Friedlander are not limited partners in the
Partnership, but are limited partners in one of the Affiliated
Partnerships, Brauvin High Yield Fund L.P. II. On August 15, 1997
the plaintiffs filed an amended complaint dropping Benjamin Siegel
as a plaintiff. The plaintiffs are also represented by the same
lawyers that represented them in the Florida lawsuit.
The complaint alleges a putative class action consisting of
claims that certain Commission rules were violated by making false
and misleading statements in the Proxy, the defendants breached
their fiduciary duties and breached the Agreement. The complaint
was consolidated with the Christman lawsuit, which is described
above, pursuant to General Rule 2.31 of the United States District
Court of the Northern District of Illinois. The General Partners
deny these allegations and intend to vigorously defend these
claims. There have been no material developments with respect to
this lawsuit since it was filed on June 20, 1997.
<TABLE>
SCHEDULE III
BRAUVIN CORPORATE LEASE PROGRAM IV L.P.
(a Delaware limited partnership)
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
<CAPTION> Gross Amount at Which Carried
Initial Cost at Close of Period
Buildings Cost of Buildings
and Subsequent and Accumulated Date
Description Encumbrances (c) Land Improvements Improvements Land Improvements Total(a) Deprec. (b) Acquired
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Steak n' Shake $0 $ 427,872 $ 618,525 $0 $ 427,872 $ 618,525 $ 1,046,397 $ 99,447 5/92
Children's World
Learning Center 0 123,962 325,827 0 123,962 325,827 449,789 69,442 8/92
Chuck E. Cheese's 0 224,335 976,601 0 224,335 976,601 1,200,936 112,443 4/93
Chuck E. Cheese's 0 153,722 864,307 0 153,722 864,307 1,018,029 127,052 4/93
Mrs. Winner's
Chicken & Biscuit 0 278,340 363,983 0 278,340 363,983 642,323 46,934 5/93
House of Fabrics 0 344,393 1,167,573 0 344,393 1,167,573 1,511,966 131,437 7/93
Volume Shoesource Store 0 766,724 954,704 0 608,024 757,004 1,365,028 99,010 9/93
CompUSA Store 0 663,681 1,811,959 0 591,481 1,687,159 2,278,640 190,633 11/93
East Side Mario's 0 538,257 976,254 0 538,257 976,254 1,514,511 97,575 1/94
Blockbuster Video Store 0 248,168 708,162 0 248,168 708,162 956,330 68,544 2/94
Walden Books Store 0 546,086 1,225,195 0 452,486 1,015,195 1,467,681 93,085 2/94
$0 $4,315,540 $9,993,090 $0 $3,991,040 $9,460,590 $13,451,630 $1,135,602
<FN>
<F1>
NOTES:
(a) The cost of this real estate is $14,308,630 for tax purposes (unaudited). The buildings are depreciated over
approximately 39 years using the straight line method. The properties were constructed between 1969 and 1993.
(b) The following schedule summarizes the changes in the Partnership's real estate and accumulated depreciation balances:
</FN>
<CAPTION>
Real estate 1997 1996 1995
<S> <C> <C> <C>
Balance at beginning of year $13,451,630 $14,308,630 $14,308,630
Deductions - land and building (d) -- (857,000) --
Balance at end of year $13,451,630 $13,451,630 $14,308,630
Accumulated depreciation
Balance at beginning of year $ 902,615 $ 638,479 $ 374,342
Provision for depreciation 232,987 264,136 264,137
Balance at end of year $ 1,135,602 $ 902,615 $ 638,479
<FN>
<F2>
(c) Encumbrances - Brauvin Corporate Lease Program L.P. IV did not borrow cash in order to purchase its properties. 100% of
the land and buildings were paid for with funds contributed by the Limited Partners.
(d) Amount reflects provision for impairment on land and building based on the original acquisition percentages for the Volume
ShoeSource store ($356,400), the Walden Books store ($303,600) and the CompUSA store ($197,000).
</FN>
</TABLE>
<PAGE>
EXHIBITS
TO
BRAUVIN CORPORATE LEASE PROGRAM IV L.P.
FORM 10-K ANNUAL REPORT
FOR THE YEAR ENDED
DECEMBER 31, 1997
<PAGE>
EXHIBIT INDEX
BRAUVIN CORPORATE LEASE PROGRAM IV L.P.
FORM 10-K
For the year ended December 31, 1997
Exhibit (21) Subsidiaries of the Registrant
Exhibit (27) Financial Data Schedule
<PAGE>
Exhibit 21
Name of Subsidiary State of Formation
Brauvin Gwinnett County Venture Illinois
Brauvin Bay County Venture Illinois
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 139,508
<SECURITIES> 251,449 <F1>
<RECEIVABLES> 453,999
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 13,451,630 <F2>
<DEPRECIATION> 1,135,602
<TOTAL-ASSETS> 13,375,062
<CURRENT-LIABILITIES> 139,780
<BONDS> 693,157 <F3>
0
0
<COMMON> 12,542,125 <F4>
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 13,375,062
<SALES> 0
<TOTAL-REVENUES> 1,610,225 <F5>
<CGS> 0
<TOTAL-COSTS> 587,249 <F6>
<OTHER-EXPENSES> 45,467 <F7>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 977,509
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1> "SECURITIES" REPRESENTS INVESTMENTS IN JOINT VENTURE
<F2> "PP&E" REPRESENTS INVESTMENT IN REAL ESTATE [LAND AND
BUILDING]
<F3> "BONDS" REPRESENTS MINORITY INTEREST IN JOINT VENTURE
<F4> "COMMON" REPRESENTS TOTAL PARTNERS CAPITAL
<F5> "TOTAL REVENUES" REPRESENTS RENTAL, INTEREST, AND OTHER
INCOME
<F6> "TOTAL COSTS" REPRESENTS TOTAL EXPENSES
<F7> "OTHER EXPENSES" REPRESENTS MINORITY INTEREST IN JOINT
VENTURES' NET INCOME
</FN>
</TABLE>
